2 (collectively, “Plaintiffs”), individually and on behalf of all other persons similarly situated, by
3 and through their attorneys, allege the following based upon personal knowledge as to Plaintiffs’
4 own acts, and information and belief as to all other matters, based upon, inter alia, the investigation
5 conducted by and through Plaintiffs’ attorneys, which included, among other things, review and
6 analysis of the Defendants’ public documents, conference calls and announcements made by
7 Defendants Tesla, Inc. (“Tesla” or the “Company”), Elon R. Musk (“Musk”), and Deepak Ahuja
8 (“Ahuja”), United States Securities and Exchange Commission (“SEC”) filings, wire and press
9 releases published by and regarding Tesla, analysts’ reports and advisories about the Company,
10 interviews with former employees of the Company, and information readily obtainable from public
11 sources. Plaintiffs believe that substantial evidentiary support will exist for the allegations set forth
12 herein after a reasonable opportunity for discovery.
13
14 NATURE OF THE ACTION
15 1. This is a federal securities class action on behalf of a Class consisting of all persons
16 other than Defendants who purchased or otherwise acquired common shares of Tesla between May
17 3, 2017 and November 1, 2017, both dates inclusive (the “Class Period”). Plaintiffs seek to recover
18 compensable damages caused by Defendants’ violations of the federal securities laws and to
19 pursue remedies under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the
20 “Exchange Act”) and Rule 10b-5 promulgated thereunder.
21
2. Despite firing public imagination with its niche, luxury electric vehicles, for Telsa
22
to survive as an automobile manufacturer in the face of stiff competition from well-established,
23
far better capitalized legacy automobile manufacturers, it must mass produce affordable electric
24
cars.
25
3. By 2017, to much fanfare, Tesla launched its “affordable” Model 3, accumulating
26
$1,000 deposits from over 500,000 potential customers.
27
28

2
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 3 of 73

1 4. Beginning on May 3, 2017 and continuing throughout the Class Period, Defendants
2 misrepresented to investors the then-current state of affairs with respect to whether the Company
3 was “on track” to mass produce the Model 3 in 2017, and whether “progress” had been made
4 supporting Defendants’ claims that 5,000 Model 3s per week would be produced before the end
5 of 2017. Defendants’ statements were false.
6 5. Serious supply chain and production problems existed by the beginning of the Class
7 Period, including incomplete and/or non-existent automated production lines, causing unresolved
8 bottlenecks at both the Company’s Fremont, California assembly line and at Tesla’s
9
“Gigafactory,” its purportedly state of the art, Nevada battery manufacturing facility. These issues
10
rendered mass producing the Model 3 in 2017 impossible. Defendants knowingly or recklessly
11
misrepresented the then-existing facts on the ground, and misrepresented the Company’s ability to
12
mass produce the Model 3 by the end of 2017.
13
6. In 2016, riding the success of Tesla’s niche, luxury Model S, Defendants announced
14
not only their intention to mass produce an “affordable” “Model 3” sedan, but touted the
15
Company’s ability to do so in the near term. In 2016, Defendants boasted that production hurdles
16
they had overcome in producing the Models S and X would benefit their ramp-up to mass
17
production of the Model 3.
18
7. Tesla’s long-term success in the auto industry hinged on its ability to mass produce
19
the Model 3. The stakes were existential. Far larger, well-established car companies such as
20
Chevrolet, Mercedes-Benz, Hyundai, Nissan, and Porsche, had already committed billions of
21
dollars to advance electric car technologies. Each already made millions more cars per year than
22
23 Tesla, and had the know-how and capacity to mass produce cars, regardless of the car’s power

24 source. Further, producing the Model 3 cost Tesla billions of dollars, and the Company needed, as

25 quickly as possible, to recoup these expenditures through mass sales of the Model 3, or face a cash

26 crunch.

27 8. Investors and the public enthusiastically greeted Tesla’s announcement that it

28 would mass produce an affordable electric vehicle. The costs and risks for Tesla of failing to mass

produce the Model 3 in a timely manner were high.

3
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 4 of 73

1 9. Defendant Musk announced that the Company would divert all income from sales
2 from Tesla’s niche luxury vehicles, the Models S and X, to fund mass production of the Model 3.
3 10. Tesla has admitted that its capital expenditure on the Model 3 was $4 billion in
4 2017, a year that ended with Tesla failing to mass produce the Model 3.
5 11. A March 12, 2018 Bloomberg article by author Tom Randall captured the
6 consensus about Tesla: the Model 3 production rate was “of existential importance” to Tesla.
7 Analysts concluded that unless Tesla met its promise to produce 5,000 Model 3s per week, it would
8 burn through its remaining cash in a year’s time and need to raise capital. The only way to begin
9
recouping these expenditures was to mass produce and sell Model 3s as quickly as possible.
10
12. Mass production of the Model 3 was dependent not only on designing, installing,
11
testing, and operating fully functional automated lines in Tesla’s Fremont, California facility, but
12
on achieving similar mass production success in Tesla’s Gigafactory, where Tesla planned to
13
produce its own batteries for the battery-powered Model 3, rather than outsourcing battery
14
production. Failure in either would materially postpone the Company’s mass production of the
15
Model 3. Time was of the essence.
16
13. Beginning in May of 2017, Defendants repeatedly stated that not only would Tesla
17
mass produce 5,000 Model 3s per week before the end of 2017, but that the actual facts on the
18
ground – “progress” in automated production at both the Fremont and Gigafactory facilities –
19
showed that the Company was “on track” to mass produce Model 3s before the end of 2017. The
20
Company repeated such declarations throughout the Class Period.
21
14. All of Defendants’ statements regarding progress that the Company had achieved
22
23 in both Fremont and at the Gigafactory, and the statements they based on these affirmative

25 15. As early as mid-2016, Tesla executives responsible for planning and building the

26 Model 3 production line plainly told Defendant Musk and the other Defendants– in person,

27 providing specific support for their statements – that the Company could never mass produce the

28 Model 3 by the end of 2017. These Tesla executives told Musk and the other Defendants that it

was an impossible goal.

4
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 5 of 73

1 16. In May 2017, when Defendants stated that the Company was “on track” to meet its
2 mass production goal, as production on a fully automated production line was supposed to be ready
3 to begin, and in August 2017, when production on a fully automated production line was supposed
4 to have already been in place and Model 3s were supposed to be coming off the line, according to
5 a number of former employees, the Company had not yet finished building its automated
6 production lines in wither Fremont or Nevada. Tesla was neither ramping up mass production, nor
7 “on track” to mass produce Model 3s at any time on or around the end of 2017.
8 17. Defendants Musk and Ahuja, who visited the Fremont facility on a regular basis,
9
knew that the Model 3 production line was way behind the publicly announced schedule and that
10
it would never mass produce the Model 3 in 2017.
11
18. As Defendants claimed to be on track for mass production in 217, the Fremont
12
facility was assembling Model 3s, by hand, in the “beta” or “pilot” shop,” a facility to assemble
13
prototypes. The actual mass production line at Freemont was yet to be completed. Workers in the
14
pilot shop were not even able to build enough Model 3s to carry out the necessary testing on the
15
vehicles, and most Model 3 workers were being reassigned, or spending their days cleaning. It was
16
evident to anyone who visited the Fremont facility – and Musk himself visited the unbuilt
17
production line area every Wednesday, known internally as “Elon Day” – that the production line
18
was not yet built, that parts for the necessary robots were not present, and that construction workers
19
were spending most of their shifts sitting around with nothing to do. Multiple former employees
20
corroborate the fact that there was no fully functioning automated production line when Tesla was
21
telling the world that there was, and that the construction site where the line was being built was
22
23 clearly and visibly far from completion.

24 19. Further, in May 2017, when Defendant Musk stated specifically that, based on what

25 Tesla had already accomplished, the Company was “on track” to mass produce Model 3s in 2017,

26 the Gigafactory did not have sufficient fully functioning production lines, batteries were being

27 built by hand, and only a handful were being produced per week. As in Fremont, the facts on the

28 ground at the Gigafactory, which Musk himself visited, belied Musk’s “on track” comment, as

well as all of the Company’s subsequent statements during the Class Period.

5
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 6 of 73

1 20. Former employees state that there was no chance that the Gigafactory would
2 produce 5,000 batteries per week at any time in 2017, and mass production of Model 3s required
3 mass production of Model 3 batteries.
4 21. In fact, in February 2018, months after the end of the Class Period, Tesla admitted
5 that its ability to ever produce more than 2,500 Model 3 batteries per week at the Gigafactory
6 required the Company to disassemble a production line that was still in Germany, ship it to Nevada,
7 and reassemble it in Nevada. This gating requirement was omitted from the Company’s numerous
8 statements to analysts and investors during the Class Period.
9
22. Multiple former employees, at both the Fremont facility and at the Gigafactory,
10
have confirmed what was obvious to anybody walking through those facilities both before and
11
during the Class Period. Tesla was never “on track” for mass production of the Model 3 before the
12
end of 2017, much less “on track” to produce 5,000 Model 3s per week before the end of 2017,
13
and the “progress” which Defendants claimed had occurred and supported their mass production
14
statements was illusory.
15
23. Without a mass production line and without batteries, it was impossible for Tesla
16
to mass produce the Model 3 in 2017, and Defendants knew Tesla had neither.
17
24. On October 2, 2017, in a press release detailing the Company’s vehicle production
18
and deliveries for the third quarter of 2017, showing that the Company produced fewer than three
19
Model 3s per day during the quarter, Tesla cited “production bottlenecks” as the reason for its
20
failure to meet its production goals for its Model 3 sedan.
21
25. On October 6, 2017, the Wall Street Journal published an article, based in part on
22
23 eyewitness observations by workers at the Fremont plant, that very few Model 3s were being built,

24 and the Model 3s that were completed were being built almost entirely by hand, and not on a

25 finished production line. On this news, Tesla’s stock dropped $13.94, or 3.91%, to close at $342.94

26 on October 9, 2017, damaging investors.

27 26. On November 1, 2017, Tesla itself finally acknowledged that mass production in

28 2017 would never happen, even as they refused to acknowledge all of their Model 3 production

problems, stating that the Gigafactory’s lack of battery production had produced a bottleneck

6
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 7 of 73

1 preventing the Company from mass producing Model 3s. On this news, Tesla’s stock dropped
2 $21.82, or 6.8%, harming investors.
3 27. Throughout the Class Period, Defendants made false and misleading statements and
4 failed to disclose that: (i) contrary to Defendants’ representations that the Company was prepared
5 for mass production of its Model 3 sedan by year-end 2017, in reality, the Company did not have
6 working production lines, and could not possibly build the production lines in the promised time-
7 frame, and was woefully unprepared to mass produce the Model 3 sedan and Model 3 battery as
8 claimed; (ii) as a result, Defendants’ public statements about the state of affairs in Fremont and at
9
the Gigafactory necessary to support mass production, and their statements about the scheduled
10
date for commencement of mass production of the Model 3 were false and misleading at all
11
relevant times.
12
28. When the true facts concerning mass production of the Model 3 were disclosed to
13
the market, Tesla’s share price dropped and Plaintiffs and the Class suffered damages,
14
PARTIES
15
29. Lead Plaintiff Kurt Friedman, as set forth in his Certification previously filed with
16
the Court, which is incorporated herein, purchased common shares of Tesla at artificially inflated
17
prices during the Class Period and was damaged upon the revelation of the alleged corrective
18
disclosures.
19
30. Named Plaintiff Gregory Wochos, as set forth in this Certification previously filed
20
with the Court, which is incorporated herein, purchased common shares of Tesla at artificially
21
inflated prices during the Class Period and was damaged upon the revelation of the alleged
22
corrective disclosures.
23
31. Named Plaintiff Uppili Srinivasan purchased common shares of Tesla at artificially
24
inflated prices during the Class Period and was damaged upon the revelation of the alleged
25
corrective disclosures. The Certification of Uppili Srinavasan is attached hereto as Exhibit A.
26
32. Defendant Tesla is incorporated in Delaware, and the Company’s principal
27
executive offices are located at 3500 Deer Creek Road, Palo Alto, California 94070. Tesla’s
28
common stock trades on the NASDAQ under the ticker symbol “TSLA.”

7
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 8 of 73

1 33. Defendant Elon R. Musk (“Musk”) has served at all relevant times as the

2 Company’s Chief Executive Officer (“CEO”), Chairman, and “Product Architect.”
3 34. Defendant Deepak Ahuja (“Ahuja”) served as the Company’s first Chief Financial
4 Officer (“CFO”) from April 2010 until 2015, returning to that position in March 2017. He remains
5 CFO to this day.
6 35. Defendants Musk and Ahuja are sometimes referred to herein as the “Individual
7 Defendants.”
8 36. Each of the Individual Defendants:
9 (a) directly participated in the management of the Company;
10 (b) was directly involved in the day-to-day operations of the Company at the
11 highest levels;
12 (c) was privy to confidential proprietary information concerning the Company
13 and its business and operations;
14 (d) was directly or indirectly involved in drafting, producing, reviewing
15 and/or disseminating the false and misleading statements and information alleged herein;
16 (e) was aware of or recklessly disregarded the fact that the false and
17 misleading statements were being issued concerning the Company;
18 (f) signed false certifications attesting to the material accuracy of documents
19 filed with the SEC; and/or
20 (g) approved or ratified false and misleading statements in violation of the
21 federal securities laws.
22 37. Tesla is liable for the acts of the Individual Defendants and its employees under the
23 doctrine of respondeat superior and common law principles of agency because all of the wrongful
24 acts complained of herein were carried out within the scope of their employment.
25 38. The scienter of the Individual Defendants and other employees and agents of the
26 Company is similarly imputed to the Company under respondeat superior and agency principles.
27 39. Defendant Tesla and the Individual Defendants are referred to herein, collectively,
28 as the “Defendants.”
SUBSTANTIVE ALLEGATIONS

8
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 9 of 73

1 Tesla’s Origins and Business

2 40. Tesla was formed in 2003 by Martin Eberhard and Marc Tarpenning. Tesla is
3 headquartered in Palo Alto.
4 41. By 2004, Tesla had developed a prototype electric car, the “Tzero,” which could go
5 from zero to 60 mph in under 4 seconds. Tesla planned to commercially produce the Tzero under
6 the model name “Roadster.” A prototype was finished by November 2004. Tesla floated a price
7 tag of $100,000 for the Roadster.
8 42. Elon Musk first became involved in Tesla’s Series A funding in 2004. By October
9 2008, Defendant Musk controlled Tesla, having forced out Eberhard and fired a quarter of Tesla’s
10 employees. Musk became Tesla’s CEO, Chairman, and “Product Architect.”
11 43. To this day, Tesla is a niche automobile manufacturer, producing fewer than 6,400
12 cars per month in 2016, all luxury models with an MSRP starting at over $74,000.
13 44. Tesla competes with established, well-capitalized automobile companies
14 worldwide, all of which are competing or beginning to compete in the electric automobile space.
15 Ford, General Motors, and Fiat-Chrysler dwarf Tesla’s production. In 2016, Tesla delivered just
16 76,000 electric vehicles of all makes, while General Motors sold 10,000,000 cars and trucks, Ford
17 sold over 6,650,000 cars and trucks, and Fiat-Chrysler sold over 4,600,000 vehicles.Tesla’s
18 revenue and profitability reflect its relatively few unit sales. On a net basis, in 2012 Tesla Motors
19 lost $396 million on revenues of $410 million, in 2013 Tesla lost $74 million on revenues of $2
20 billion, in 2014 Tesla lost $294 million on revenues of $3.2 billion, and in 2015 Tesla lost $889
21 million on revenues of $4 billion. By contrast, Tesla’s competitors typically turn a profit, on much
22 higher revenues. For example, in 2015, General Motors earned net income of $9.6 billion on
23 revenues of $152.4 billion.
24 45. Tesla’s competitors reach their sales figures and profits because they mass produce
25 and sell affordable vehicles. Among many others, Ford sells the Ford F-150, General Motors the
26 Silverado, and Fiat-Chrysler the RAM pickup. All of these vehicles start at about $30,000, and
27 these companies have many other offerings at this and other attractive price levels.
28 46. Until 2016, Tesla produced only two luxury models, the Model S, a sedan, and the
Model X, a sport utility vehicle. According to Kelley Blue Book, in 2016, the average new car in

9
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 10 of 73

1 the United States sold for approximately $33,000. The base MSRP for the Model S and Model X

2 was more than twice as much. As of December 31, 2015, the least expensive Model S and Model
3 X were approximately $70,000. Premium configurations raised the price as high as double this
4 amount.
5 47. Tesla’s luxury models are not mass-market cars, nor did Tesla ever intend to mass
6 produce them on a large scale.
7 48. Tesla acknowledges that the market for Models S and X is small. On a May 3, 2017
8 earnings conference call to discuss Tesla’s first quarter 2017 earnings (“May 3, 2017 Conference
9 Call”), Defendant Musk admitted that the demand for luxury sedans is “like nothing – less than
10 1% of the market, 0.5%.”
11 49. On the call, Musk also stated that annual sales of premium sedans in the United
12 States were approximately 100,000, out of 17 million vehicles sold annually in the United States.
13 Musk essentially acknowledged the existential importance of Tesla succeeding in mass producing
14 the Model 3 in a short period of time.
15 Tesla Overpromises in Production Goals for Earlier Vehicles
16 50. Before the Model 3, Tesla only built three cars: the Roadster, the Model S, and the
17 Model X. In announcing the Model 3, Tesla claimed it had learned from mistakes made during the
18 ramp up of production of its luxury models. Those mistakes were numerous.
19 The Roadster
20 51. Tesla first designed and built the Roadster, a sports car. Lotus Cars (“Lotus”)
21 actually built the Roadster using gliders (car bodies without an engine).
22 52. Tesla initially planned to begin commercial-level production of the Roadster by
23 2006. It did not achieve this goal.
24 53. In July 2006, Tesla took 127 preorders for Roadsters. Customers had to put down
25 the full purchase price of $100,000. 1 In Musk’s customer letters, Tesla promised delivery by the
26 summer of 2007. 2 This was just the first in a long line of Defendants’ false promises.
27
1
28 See “The Making of Tesla: Invention, Betrayal, and the Birth of the Roadster,”
http://www.businessinsider.com/tesla-the-origin-story-2014-10.
2
Id.

10
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 11 of 73

1 54. By January 2007, Lotus had delivered to Tesla, which was responsible for all

2 aspects of the design of their first car, a list of 940 outstanding production problems. Of these,
3 Tesla had resolved only 94. 3
4 55. Tesla then announced that it would begin shipping Roadsters in the first quarter of
5 2008 – a promise that was reiterated as late as November 2007.
6 56. Tesla, however, did not begin production of Roadsters until March 2008, failing to
7 deliver the first until the fall of 2008. By April 2009, the Company had delivered a total of 320
8 Roadsters.
9 57. By May 2009, however, Tesla recalled all 345 Roadsters built before April 22,
10 2009. Tesla told customers that without adjustment the driver could lose control of the car and
11 crash.
12 58. In October 2010, Tesla recalled a further 439 Roadsters, or about one third of the
13 Roadsters that had been sold to date, because of a potential fire hazard.
14 59. Ultimately, only 2,450 Roadsters were sold before Tesla completed its contract with
15 Lotus in 2012. The contract was not renewed.
16 The Model S
17 60. In February 2007, Tesla announced that it would build a luxury sedan, later dubbed
18 the Model S, initially setting the price at approximately $45,000. Reservations cost a minimum
19 down-payment of $5,000.
20
21
22
23
24
25
26
27
28
3
Id.

11
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 12 of 73

1 61. As with production promises for the Roadster’s, Tesla delayed the Model S’s

2 production date repeatedly, initially promising production by the fall of 2009, 4 but pushing it back
3 first to 2011 and then to 2012. 5
4 62. Ultimately, Tesla began shipping the Model S in June 2012, with a base MSRP of
5 about $70,000.
6 63. Once again, production problems plagued the car’s quality. In June 2013, Tesla
7 recalled more than 1,000 Model Ss, because certain parts could cause a collapse of the rear seat
8 back during a crash.
9 64. In January 2014, Tesla recalled 29,000 Model S units because chargers could
10 overheat, creating fires.
11 65. In November 2015, again, Tesla recalled all 90,000 Model S units because their
12 seat belts might not be correctly attached, increasing the risk of injury in case of an accident.
13 66. In April 2017, Tesla recalled another 53,000 Model S and Model Xs.
14 The Model X
15 67. The Model X was first unveiled online in 2012. A physical model was first
16 presented in January 2013. At the time, Tesla promised that production would begin by the end of
17 2013, less than 12 months away, with deliveries beginning in early 2014.
18 68. In early 2013, Tesla pushed back the start of production to late 2014. In November
19 2013, Tesla pushed back deliveries to the second quarter of 2015. In November 2014, Tesla pushed
20 production back again, to the third quarter of 2015. Deliveries finally started on September 29,
21 2015.
22 69. On an earnings conference call on May 4, 2016 to discuss Tesla’s first quarter 2016
23 results (“May 4, 2016 Conference Call”), Musk told investors that the Model X is “I think
24 unquestionably the most difficult car to manufacture in the world.”
25 70. Tesla has admitted the many mistakes it made with the Model X. Musk stated
26 during the May 3, 2017 Conference Call that the “[Model] X became kind of like a technology
27
4
28 https://web.archive.org/web/20100406182037/http://www.teslamotors.com/media/press_room
.php?id=257
5
Tesla IPO Prospectus dated June 29, 2010, at 2.

12
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 13 of 73

1 bandwagon of every cool thing you can imagine all at once. It's like everything all at once. That

2 was a terrible strategy.” Musk blamed “hubris and real overconfidence.”
3 Announcement of the Model 3 – Tesla States this Time Production Will be Different
4 71. During a February 15, 2012, earnings conference call, Defendant Musk announced
5 that the next Tesla car after the Model X would be an affordable mass market vehicle Tesla dubbed
6 the “Gen 3.” During a November 5, 2014, earnings conference call, the Company affirmed that a
7 car like the Model 3 “has been the goal of the company all along.”
8 72. In 2016, over four years after first announcing its intention to design and mass
9 produce an affordable, mass market electric vehicle, Tesla disclosed concrete plans to market and
10 sell the Gen 3, which it now dubbed the “Model 3.” Designed to be affordably priced starting at
11 $35,000, the Model 3 was Tesla’s first car intended to be mass produced and appeal to a mass
12 market. The Roadster, Model S, and Model X were luxury, niche vehicles never intended for mass
13 production.
14 73. On the May 3, 2017 Conference Call, Musk boasted that the demand for the Model
15 3 at $35,000 was between thirty and seventy times the demand for the Model S. Within one day
16 of Tesla beginning to accept $1,000 refundable deposits to reserve a Model 3, 198,000 people had
17 paid the deposit.
18 74. From the time of Defendants’ 2016 disclosure of plans to produce the Model 3,
19 Defendants told investors that they had learned from their previous mistakes, and that Model 3
20 production would be different.
21 75. Defendants downplayed their previous failures to meet production deadlines with
22 their earlier cars in touting their Model 3 production capabilities.
23 76. On February 10, 2016, during Tesla’s fourth quarter 2015 earnings conference call
24 (“February 10, 2016 Conference Call”), Musk told investors that while the Model S was essentially
25 a “proof-of-concept” car that Tesla had designed and produced to convince the world that electric
26 cars could be attractive, Tesla designed the Model 3 “for ease of manufacturing.”
27 77. According to Defendants, the Model 3 was “quite a bit less complex to manufacture
28 than the Model S.” According to Defendant Musk, manufacturing costs for the Model 3 would be

13
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 14 of 73

1 only 50% of the manufacturing costs of the Model S, due to decreased complexity and economies

2 of scale and general design improvement.
3 78. During the May 4, 2016 Conference Call, Tesla told investors it anticipated Model
4 3 sales of approximately 300,000-400,000 in 2018, increasing materially thereafter. At those
5 numbers, Tesla would produce and deliver between 5,769-7,692 Model 3s per week in 2018, so
6 Defendants were announcing to the market at this early date that they intended to mass produce
7 the Model 3 before the end of 2017. 6 On that same call, Defendants represented to investors that
8 Tesla had a volume target of close to one million vehicles in 2020 – the vast majority of which
9 would be Model 3s. Musk represented that Tesla was “highly confident that [the Model 3] can be
10 made profitably.”
11 79. During the August 3, 2016 earnings conference call (“August 3, 2016 Conference
12 Call”), Musk repeatedly stated that the Model 3 was Tesla’s primary focus, stating, e.g., that “the
13 Model 3 [is] our focus,” and “the focus really is on Model 3.”
14 80. According to Defendants, the Company would eliminate the production problems
15 that plagued manufacture of Models S and X, and streamline the manufacture and delivery of the
16 Model 3. During a February 22, 2017 Conference Call to discuss Tesla’s fourth quarter 2016
17 earnings (“February 22, 2017 Conference Call”), Defendant Musk admitted that the relatively
18 small numbers of Models S and X that Tesla produced left Tesla unable to attract premier parts
19 suppliers to make parts for and dedicate their best employees to producing those vehicles. Musk
20 admitted that the parts were manufactured by “the worst team on second-tier suppliers.” By
21 contrast, Tesla bragged that because of the Model 3 volume Defendants anticipated, the Company
22 was able to get “the best team on first-tier suppliers,” which Musk stated made “really a big
23 difference.”
24 81. As Tesla President of Global Sales & Service Jon McNeill touted on the February
25 22, 2017 Conference Call, Tesla claimed to have learned from its experience with the Model X:
26 I might just add that we really learned a lot of lessons especially from the
27 difficult Model X ramp, and that is something that's in our recent memory.
28
6
By contrast, Tesla’s announced target for 2018 production of Models S and X on the May 4, 2016
Conference Call, combined, was 100,000-150,000.

14
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 15 of 73

1 We fought through it and succeeded, but I think in the design the Model 3

2 and the systems and the lines that produce it, many of those learnings have
3 been incorporated from the beginning. So if the amount of complexity and
4 the operations to assemble the car is dramatically reduced, the amount of
5 operations that involve some sort of assembly craft, where there is more
6 judgment of the operator, is dramatically reduced, almost eliminated. And
7 a lot of these things that we could identify directly as the bottlenecks that
8 hurt us on the X ramp, we have been able to target specifically and reduce
9 or eliminate. So that has -- though painful, it was a helpful experience for
10 us to get ready for Model 3.
11 82. Musk agreed, stating during the May 3, 2017 Conference Call, on the first day of
12 the Class Period, that the Model 3 would be a radically simpler car to produce than Models S or
13 X.:
14 We've gone to great pains with the Model 3 to design it for manufacturing
15 and to not have all sorts of bells and whistles and special features that, like,
16 for example, with X. 7
17 ****
18 So with Model 3 it's the opposite. We've designed it to be easy to make.
19 We’ve got I think a much better supply chain in place where we’ve got the
20 A team from the A suppliers. We didn’t have that for the Model X or the S.
21 And as far as we know, there are no issues.
22 83. Further, Tesla intended to automate far more of the Model 3 production than for its
23 previous vehicles. According to Jeffrey B. Straubel, Tesla’s Chief Technology Officer, during the
24 May 3, 2017 Conference Call, the Model 3 is “vastly more automated” than Models S or X, perhaps
25
26
27 7
During the February 22, 2017 Conference Call, Musk cited as examples of “bells and whistles”
on Models S and X that would not be in the Model 3 design “self-presenting door handles,” a
28
feature where the driver-side door handle automatically sticks out when the owner approaches,
and “buckling doors,” where the entire door opens as the owner approaches.

15
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 16 of 73

1 “3 to 4x more automated.” Defendant Musk added that the production speed for the Model 3 will

2 be “at or probably slightly better” than the next best car in the world.
3 The Gigafactory
4 84. Tesla’s ability to achieve mass production of the Model 3 was always dependent
5 on a fully automated, Model 3 dedicated production line in Fremont, California.
6 85. In addition, for the Model 3 Tesla determined to manufacture its own batteries at a
7 Reno, Nevada facility called Gigafactory 1 (“Gigafactory”). 8 Citing a battery shortage as the main
8 reason Tesla had, until that time, been unable to market its vehicles as aggressively as they
9 otherwise would have, in 2013, the Company announced plans to manufacture its own battery
10 production facility, the Gigafactory. 9
11 86. Tesla’s ability to mass produce the Model 3 depended on its ability to manufacture
12 enough quality batteries at the Gigafactory. During a July 28, 2017 “handover” event with Tesla
13 employees, Musk stated that “the production rate will move as fast as the slowest… component in
14 the whole mix. Then on top of that we have the Gigafactory…” 10 During the Class Period, The
15 Company produced all batteries for the Model 3 at the Gigafactory. 11
16 87. Defendants disclosed that they had conceived the Gigafactory as part of a “vertical
17 integration” strategy. Rather than managing a system of producers who would feed in to Tesla,
18 Defendants intended Tesla to control and manage every aspect of production. Defendants’ vertical
19 integration strategy is radically different than the prevailing “lean” production philosophy the auto
20 industry has employed for the past 50 years. 12 With lean production, suppliers deliver components
21
8
The Gigafactory 1 (“Gigafactory”) is a lithium-ion battery factory. The numerical “1”
22 designation is indicative of Tesla’s plans to build multiple gigafactories in the United States,
Europe, and China. See http://www.thedrive.com/tech/9819/tesla-may-announce-four-new-
23 gigafactories-this-year.
9
24 See https://www.techspot.com/news/54600-tesla-wants-to-build-a-massive-battery-supply-
facility-to-curb-shortages.html.
25 10
Though Musk told employees that the next six months would be “production hell,” he did not
waver from a statement the Model 3 would be mass produced around the end of 2017.
26 11
According to Tesla, the name Gigafactory comes from the word “Giga,” the unit of
27 measurement representing “billions,” given that the factory’s planned annual battery production
capacity is 35 gigawatt-hours (GWh), with one GWh being the equivalent of generating (or
28 consuming) 1 billion watts for one hour. See https://www.tesla.com/gigafactory.
12
See http://www.businessinsider.com/tesla-has-to-overcome-a-major-problem-for-its-
massive-new-gigafactory-to-succeed-2016-7.

16
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 17 of 73

1 to each team’s work station just-in-time for assembly, encouraging resourceful problem-solving

2 and discouraging the practice – common in vertical integration – of relying on a surplus of spare
3 parts. 13
4 88. Defendants developed Tesla’s vertical integration strategy because Tesla is one of
5 the few automobile manufacturers whose entire line is electric, and none of its previous models
6 was mass produced. Supplies of batteries and other electric vehicle-specific parts was limited, and
7 Tesla was unable to wait for a supply chain to develop to service its demand. 14
8 89. Despite that necessity, Tesla’s plan to produce its own batteries adds an additional,
9 vital manufacturing challenge its competitors do not face. 15
10 90. Tesla signed an official partnership agreement with Panasonic regarding the
11 Gigafactory in July 2014. Panasonic was already previously supplying Tesla with millions of
12 battery cells. Tesla broke ground on construction of the Gigafactory around the same time.
13 91. Tesla has stated that it is building the Gigafactory in phases so it can manufacture
14 immediately inside completed sections, while continuing to expand. 16 When the Gigafactory
15 opened in July 2016, a little more than two years after construction began, construction was
16 approximately 14% complete. Currently, the Gigafactory has a footprint of more than 1.9 million
17 square feet, with more than 4.9 million square feet of operational space across several floors.
18 When finished, the Gigafactory is projected to be the biggest building, by footprint, on the planet. 17
19 92. The Model 3 battery was designed differently than the batteries for Models S and
20 X to accommodate the Model 3’s lower price point, with different numbers and configurations of
21 modules and battery cells. The batteries for Models S and X are not produced at the Gigafactory, 18
22 and Tesla has confirmed that Model 3 batteries will not be produced on lines that produce Model
23
13
24 See https://www.economist.com/node/14299730.
14
See http://www.businessinsider.com/tesla-has-to-overcome-a-major-problem-for-its-
25 massive-new-gigafactory-to-succeed-2016-7.
15
26 Id.
16
Currently, the Gigafactory is less than thirty percent complete.
27 17
See https://www.tesla.com/gigafactory.
28 18
See “Tesla Batteries 101 – Production Capacity, Uses, Chemistry, & Future Plans,”
https://cleantechnica.com/2017/12/02/tesla-batteries-101-production-capacity-uses-chemistry-
future-plans/.

17
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 18 of 73

1 S and X batteries, nor will the Company change the design of the Models S and X batteries to

2 incorporate the Model 3’s lithium-ion cell. 19
3 93. Further, batteries of different sizes will be produced for the two versions of the
4 Model 3 (220 mile range and 310 mile range). 20
5 94. At the end of the Class Period, Panasonic CEO Kazuhiro Tsuga confirmed that
6 Model 3 battery pack production was not automated during the Class Period. 21
7 Failure to Mass Produce the Model 3 Presented an Existential Dilemma for Tesla
8 95. Mass producing the Model 3 before the end of 2017 was critical to Tesla. One
9 March 12, 2018 Bloomberg article stated that “[t]he Model 3 production rate is of existential
10 importance to Tesla.” 22 These pressures motivated Defendants to mislead investors during the
11 Class Period to preserve Tesla’s stock price and its ability to raise money to fund operations.
12 96. The Wall Street Journal stated that mass production of the Model 3 was “a make-
13 or-break period in which Tesla must boost production of the Model 3 or possibly face severe
14 financial consequences.” 23 Tesla’s commitment to the Model 3 caused it to spend $4 billion dollars
15 for Model 3 production in 2017, alone. Tesla had to spend cash to ramp up mass production of the
16 Model 3, which it depended upon to increase cash flow and allow the Company to continue its
17 development as an electric vehicle company.
18 97. If Tesla did not mass produce the Model 3, it would fail to bring in the cash
19 necessary to continue funding the Model 3.
20 98. During the July 28, 2017 “handover” event, Defendant Musk told the assembled
21 employees that revenues from sales of the Models S and X were being diverted to the Model 3
22 project. In a First Quarter 2017 Update filed by Tesla on May 3, 2017, Defendants stated that “we
23
19
See “Dissecting the Tesla Model 3’s 2170 lithium ion battery cell, what’s inside?”
24 https://www.teslarati.com/inside-tesla-model-3-2170-lithium-ion-battery/.
20
25 See “Tesla Model 3: Performance, specs, and news,” https://www.digitaltrends.com/cars/tesla-
model-3-performance-specs-news-rumors/.
26 21
See https://arstechnica.com/cars/2017/10/production-problems-at-teslapanasonic-gigafactory-
may-be-at-an-end/.
27 22
http://bloomberg.com/news/articles/2018-03-12/tesla-s-production-problems-spawn-a-
28 legion-of-model-3-stalkers.
23
https://www.wsj.com/articles/teslas-make-or-break-moment-is-fast-approaching-
1521111603?mod=e2tw.

18
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 19 of 73

1 expect that year-to-date expenditures will be slightly over $2 billion by the start of Model 3

2 production. In the Second Quarter 2017 Update filed by Tesla on August 2, 2017, the company
3 noted that for the Model 3 “capital expenditures should be about $2 billion during the second half
4 of 2017.” 24 Tesla has burned through about $10 billion in cash since 2010. 25
5 99. During an August 2, 2017 earnings conference call (“August 2, 2017 Conference
6 Call”), in a colloquy with JPMorgan Securities LLC analyst Ryan Brinkman, the Company
7 reiterated the importance to 2017 results of cash from mass production of the Model 3. Defendants
8 attempted to put investors at ease about the threat of a cash crunch from a failure to mass produce
9 the Model 3 in 2017:
10 Ryan J. Brinkman - JP Morgan Chase & Co, Research Division - Senior
11 Equity Research Analyst: In just thinking about your liquidity position,
12 while you're operating with more cash than you historically have, $3 billion,
13 I see you're also guiding to $2 billion CapEx in the back half and you
14 previously said $1 billion of gross cash is as low as you're comfortable
15 operating at. So you guide to positive cash from operations the back half,
16 presumably on Model 3 ramp in 4Q. But if it's only a little positive, then I
17 guess you would be close to your targeted cash level. So the question is can
18 you help us size up how positive do you expect the cash from operations
19 to be in the back half? And if that level of cash from operations plus
20 whatever remains available to draw on your asset-backed line, if that's
21 sufficient cushion for you relative to your $1 billion target or whether it
22 might make sense to do another equity raise?
23 Elon R. Musk - Tesla, Inc. - Co-Founder, Chairman, CEO and Product
24 Architect: Yes. Deepak, do you want to...
25
26
27 24
Tesla repeated this statement in a 10-Q filed on August 4, 2017, stating “we expect to invest
28 approximately $2.0 billion in capital expenditures during the second half of 2017.”
25
https://www.wsj.com/articles/teslas-make-or-break-moment-is-fast-approaching-
1521111603?mod=e2tw.

2 operating cash flows to be significantly better in the second half compared
3 to the first half. At their highest level, scaling generates cash.
4
5 Elon R. Musk - Tesla, Inc. - Co-Founder, Chairman, CEO and Product
6 Architect: Yes, it certainly does.
7 100. Later in that same August 2, 2017 Conference Call, Musk elaborated, admitting
8 that:
9 This is just because of Model 3 is fundamentally negative gross margin in
10 the very beginning, because you've got a gigantic machine producing -- that's
11 meant for 5,000 vehicles a week and it's producing a few hundred vehicles a
12 week. 26
13 101. During that same call, Musk emphasized the importance of mass production to
14 Tesla’s short term cash position, and to avoid a future cash crunch. Tesla had set a 25% margin for
15 Model 3 sales, and Musk admitted that until Tesla sold 5,000 Model 3s per week, and then for
16 months after, that margin goal would not be met. 27
17 102. UBS analyst Colin Langan has stated that until Tesla mass produces 5,000 Model
18 3s per month, it will continue burning through cash. 28 Tesla had only $3.4 billion cash in hand at
19 the end of 2017, meaning that burning through $4 billion without mass production had created a
20 cash crunch, and failure to mass produce the Model 3 in 2018 would require Tesla to raise funds
21 through debt or equity markets, which would be made more difficult if investors lost confidence
22 in the Company’s ability to quickly mass produce Model 3s and the stock price fell. 29
23
24
26
25 Musk made this comment during the third quarter of 2017. At no point in that quarter did Tesla
produce “a few hundred vehicles a week.” Model 3 production averaged less than 3 vehicles per
26 day during the third quarter of 2017.
27
During the call, Musk further reassured that the investments made are “taking us to 5,000 and
27 beyond [in Model 3 production].”
28
28 https://www.wsj.com/articles/teslas-make-or-break-moment-is-fast-approaching-
1521111603?mod=e2tw.
29
Id.

20
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 21 of 73

1 103. Tesla’s existential dilemma is also due to the fact that it is quickly losing any

2 advantage it once had for being first on the market, as far more experienced competitors are
3 investing billions of dollars to compete with Tesla, and some have actually beat Tesla to market
4 with affordable electric vehicles. These facts further underline the need for Tesla to mass produce
5 the Model 3 quickly.
6 104. Daimler AG, owner of Mercedes-Benz, announced in the third quarter of 2017 that
7 it would invest $1 billion to produce electric vehicles in the United States. 30 Porsche is investing
8 $7.4 billion in electric cars, developing and selling not only electric vehicles but “new
9 technologies, charging infrastructure and smart mobility.” 31 General Motors announced in 2017
10 that it will sell two fully electric models in 2018, and at least 18 more by 2012. 32 Further, GM is
11 establishing significant footprints in countries Tesla has hardly reached, with plans to launch ten
12 electric vehicles in China by 2020. 33 Hyundai has plans to sell the Kona, an electric vehicle with
13 a 292 mile range, which is designed to “battle the Chevy Bolt EV, Nissan Leaf and Tesla Model
14 3.” 34 In July 2017, Volvo announced that as of 2019, every car Volvo produces will have a version
15 that runs on electric power. 35 Toyota has announced similar plans for all its vehicles by 2025. 36
16 105. Competitors already market and mass produce electric vehicles, selling a higher
17 number of affordable electric vehicles than Tesla. GM sells its Chevy Bolt EV for $33,000. Chevy
18 has sold over 130,000 of its Volt model, and over 25,000 Chevy Bolts. Chevy sold nine times as
19 many Bolts as Tesla sold Model 3s in the final quarter of 2017. 37 Nissan sold approximately 50,000
20 of its electric Leaf vehicle in 2016. Privately owned Chinese manufacturer BYD (“Build Your
21 Dreams”), which also makes battery cells, is partially owned by Warren Buffett, and has a joint
22 30
https://www.bloomberg.com/news/articles/2017-09-21/mercedes-plots-tesla-attack-with-1-
23 billion-u-s-electric-push.
31
https://www.theverge.com/2018/2/5/16975752/porsche-electric-cars-investment-smart-
24 mobility.
32
25 https://www.wired.com/story/general-motors-electric-cars-plan-gm/.
33
Id.
26 34
https://www.cnet.com/roadshow/news/hyundai-kona-electric-ev-new-york-auto-show-suv/.
27 35
https://www.wired.com/story/volvos-electric-car-plan/.
36
28 https://electrek.co/2017/12/18/toyota-electric-car-plans/.
37
https://seekingalpha.com/article/4135148-december-sales-general-motors-chevy-bolt-ev-
outsold-tesla-model-3-3-1.

21
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 22 of 73

1 venture with Mercedes-Benz, sold more electric cars in 2015, 2016, and 2017 than any company,

2 including Tesla. 38 Internationally, as of July 2017, i.e., during the Class Period, more than 30 fully
3 electric vehicles were available on the international market. 39
4 106. With all of these competitive pressures bearing down on Defendants Musk and
5 Tesla, during the Class Period, Defendants repeatedly told investors and analysts that actual
6 already-existing progress, i.e., facts on the ground, supported that Tesla could and would mass
7 produce the Model 3 before the end of 2017. Each of Defendants’ statements about Tesla’s actual
8 progress towards mass production of the Model 3 was knowingly or recklessly false.
9 107. On May 3, 2017, after the close of the market, Tesla filed with the SEC its “Tesla
10 First Quarter 2017 Update” as Exhibit 99.1 to an 8-K. Defendants Musk and Ahuja signed the
11 Update. Directly referencing actual facts on the ground with respect to completion of the
12 automated line meant to produce the Model 3, i.e., progress that could be seen, the Company stated
13 that:
14 [P]reparations at our production facilities are on track to support the ramp
15 of Model 3 production to 5,000 vehicles per week at some point in 2017, and
16 to 10,000 vehicles per week at some point in 2018. 40
17 108. Later that same day, during the May 3, 2017 Conference Call, Defendant Musk
18 engaged in a colloquy with Deutsche Bank AG analyst Rod Avraham Lache. Again, Musk stated
19 that based on what had been achieved to date, nothing would stop mass production of the Model
20 3 in 2017:
21
22 Lache: A couple remaining questions. Just one is, since the Model 3 is maybe
23 2 or 3 months away, could you just give us a sense of what some of the most
24 critical outstanding items are that are going to gate the commercial launch
25 timing? And now that there are actual physical test vehicles on the road, are
26
27 38
https://www.greencarreports.com/news/1115398_chinas-byd-tops-global-electric-car-
production-for-third-year-in-a-row.
28 39
https://www.wired.com/story/volvos-electric-car-plan/.
40
Emphasis added unless otherwise noted.

22
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 23 of 73

1 there any significant changes happening?

2 Musk: Well, actually it seems to be -- we're not really seeing any significant
3 change that needs to occur with Model 3. So it's coming in as expected, as
4 the design continuation has predicted, it's getting pretty close to the bull's-eye,
5 and I'm not aware of anything that would affect our prior statements about
6 volume target.
7 Lache: So there's nothing outstanding vis-à-vis tooling, deliveries or things
8 like that, that you're still viewing as a critical item with some uncertainty?
9 Musk: There's plenty of things with uncertainty, but I don't know anything
10 that would prevent us from starting firstly in July, and exceeding 5,000
11 units per week by the end of the year. There may be some cost up there, I just
12 don't know of what that is today.
13 109. In fact, as described in detail below, Musk was personally aware of existing facts
14 that prevented Model 3 mass production in 2017.
15 110. Just a week later, on May 10, 2017, the Company struck again in the first quarter
16 2017 10-Q, reassuring analysts and investors that progress on the ground was going as planned for
17 mass production in 2017:
18 In the first quarter of 2016, we unveiled Model 3, a lower priced sedan
19 designed for the mass market. Model 3 vehicle development is nearly
20 complete as we approach the start of initial production in July of this year.
21 Release candidate vehicles, built using production-intent tooling and
22 processes, are being tested to assess fit and finish, to support vehicle software
23 development and to ensure a smooth and predictable homologation process.
24 Road testing is also underway to refine driving dynamics and ensure vehicle
25 durability. Simultaneously, preparations at our production facilities are
26 progressing to support the ramp of Model 3 production to 5,000 vehicles per
27 week at some point in 2017 and to 10,000 vehicles per week at some point in
28 2018. We are working closely with all Model 3 suppliers to ensure their
readiness ahead of the start of production.

23
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 24 of 73

1 111. The first quarter 2017 10-Q also specifically stated that things were already going

2 well at the Gigafactory to support mass production of the Model 3 in 2017, with the Company
3 writing: Although we continue to remain on track with our progress at Gigafactory 1….
4 112. At no point in May 2017 did Musk or the other Defendants even hint that
5 preparations for mass production of the Model 3 by the end of 2017 were lagging, failing, or
6 otherwise of concern.
7 113. Analysts believed Defendants. In a May 4, 2017 analyst report from Oppenheimer,
8 analyst Colin Rusch noted that with respect to the Model 3, “progress on manufacturing to date is
9 performing ahead of our expectations.”
10 114. Similarly, a Deutsche Bank analyst stated on May 4, 2017, without reservation, that
11 “Tesla remains confident in the launch timing of Model 3, with production expected to begin in
12 July. They still expect to reach a production run rate of 5k/week at some point in 2017….”
13 115. Following the July 28, 2017 “handover” event, where the first 30 Model 3s were
14 delivered to buyers, analysts again expressed confidence in Defendants’ statements that already-
15 existing progress meant Tesla was on-target for mass production in 2017. In a July 30, 2017
16 KeyBanc Capital Markets analyst report, analyst Brad Erickson even reprinted a chart Musk
17 projected to employees on July 28, 2017, showing production reaching 5,000 Model 3s per week
18 in 2017.
19 116. When the Company spoke to the public again, in August 2017, Defendants
20 continued telling the public that progress that had already occurred in Fremont and at the
21 Gigafactory supported Model 3 mass production before the end of the year, statements augmented
22 by the fact that in August the Company stated that it was already producing Model 3s at sufficient
23 rates.
24 117. On August 2, 2017, Tesla filed with the SEC “Tesla Second Quarter 2017 Update”
25 as Exhibit 99.1 to an 8-K. Defendants Musk and Ahuja signed the Update. Directly referencing
26 actual facts on the ground with respect to completion of the automated line meant to produce the
27 Model 3, a line which was supposedly already producing cars, the Company stated, based on
28 current production line advancement, that:
Based on our preparedness at this time, we are confident we can produce

24
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 25 of 73

1 just over 1,500 vehicles in Q3, and achieve a run rate of 5,000 vehicles per

2 week by the end of 2017.
3 118. Later that same day, during the August 2, 2017 Conference Call, Defendant Musk,
4 in prepared remarks, again referenced production achievements that had progressed as planned,
5 stating that:
6 And we remain – we believe on track to achieve a 5,000 unit week by the
7 end of this year.
8 So, I would certainly urge people not to get too caught up in what exactly falls
9 within the exact calendar boundaries of a quarter, one quarter over the next,
10 because when you have an exponentially growing production ramp, slight
11 changes of a few weeks here or there can appear to have dramatic changes,
12 but that is simply because of the arbitrary nature of when a quarter ends.
13 ….
14 And then we – with Model 3, even more vertically integrated. I think people
15 should really not have any concerns that we will reach that outcome [10,000
16 cars per week by the end of 2018] from a production rate.
17 119. Again during the August 2, 2017 Conference Call, in prepared remarks, Defendant
18 Musk told investors that events that had already transpired at the Gigafactory, which by this time
19 was supposed to be producing batteries on a production line to meet the stated mass production
20 goal, were in-line with the stated expectations, stating: “[a]nd then batteries – also making great
21 progress on the battery front.”
22 120. Analysts again credited the Company’s statements about progress as they related to
23 meeting the mass production goal. Deutsche Bank Market Research, in an August 2, 2017 report
24 entitled “Tesla’s Outlook Bullish vs. Expectations,” specifically noted that Tesla had stated that
25 already-completed progress drove their confidence in 2017 mass production, writing that “Tesla’s
26 management sounded very confident in their level of preparedness to achieve production targets.
27 The analyst continued that “the combination of higher margins and a faster production ramp would
28 have significant positive implications for earnings and cash flow.”

25
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 26 of 73

1 121. Analyst Guggenheim, in an August 3, 2017 report recommending that investors

2 “buy” Tesla stock, were also convinced that progress on the ground was already occurring on pace,
3 writing “Tesla’s economic model remains all about Model 3…. Model 3 began production in July,
4 hitting a target we do not believe most thought would even be met just 3-6 months ago….”
5 Defendants Knew that Mass Production of the Model 3 in 2017 was Impossible
6 122. No facts available to Defendants either in May 2017 or in August 2017 supported
7 Defendants’ statements to investors. Not only did the truth of what “progress” had been made in
8 Fremont or at the Gigafactory make clear that there was no way that the Model 3 would be mass
9 produced in 2017, much less produced at a rate of 5,000 vehicles per week, but Defendants knew
10 the actual truth, because they, themselves, frequently visited the two production facilities.
11 123. Defendant Musk’s own executives told Musk personally, as far back as mid-2016,
12 that there was zero chance of mass producing the Model 3 in 2017. Former Employee (“FE”) 1
13 was Director of Manufacturing at Tesla’s Fremont plant from December 2012 to June 2016. He
14 reported directly to Josh Ensign, Vice President of Manufacturing, and FE1 also reported directly
15 to Musk.
16 124. FE1 was responsible for the planning for manufacturing capabilities, as well as for
17 production for the Model 3. FE1’s area of concentration was plastics and coating, known as the
18 “accordion shop” because it is the part of the production process in-between building the body of
19 the car and assembling the rest of the car. FE1 was required to know what was happening in both
20 the processes upstream and downstream from the “accordion shop.”
21 125. Sometime in late April or early May of 2016, FE1 participated in a meeting with
22 Musk, CFO Jason Wheeler, 41 and the Vice President of Engineering. FE1 stated that during that
23 meeting, he told Musk directly that there was zero chance that the plant would be able to produce
24 5,000 Model 3s per week by the end of 2017.
25 126. FE1 stated that there were many reasons why Tesla would never be able to produce
26 5,000 Model 3s per week by the end of 2017, all known as of April or May of 2016. As of FE1’s
27 departure in June 2016, Tesla did not yet even have a finalized design for the Model 3, so Tesla
28
41
Wheeler both followed and preceded Defendant Ahuja as CFO.

26
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 27 of 73

1 could not release information so molds for body parts could be built. Molds take from 9-12 months

2 to make.
3 127. FE1 further stated that Tesla had not yet begun ordering manufacturing equipment
4 to be installed at the Fremont plant. The timeline for functioning manufacturing equipment
5 includes 1-2 months to seek bids and negotiate contracts with suppliers, 6 months to manufacture
6 equipment, 6 months to install the equipment in the Fremont plant, and 6 months to get the
7 equipment working up to speed. Thus, the automated assembly line for the Model 3 could not
8 possibly even be mass producing cars in 2017.
9 128. FE1 told Musk directly at the meeting that the start of manufacturing would be at
10 least 6 months later than July 2017, i.e., in 2018. FE1 further told Musk that Tesla needed to expand
11 the area needed at the Fremont plant to prepare the body of the Model 3. Musk rejected this idea.
12 129. At the conclusion of the April or May 2016 meeting, Musk told FE1 that he should
13 look for new employment. FE1 resigned from Tesla because of the false timeline for the Model 3.
14 FE1 stated that it was obvious to everyone in the factory that Tesla would not be producing 5,000
15 cars per week by the end of 2017.
16 130. FE1 stated that Ensign, the Vice President of Manufacturing, also told Musk
17 directly that the Company would never be able to meet Musk’s unrealistic timeline for production
18 of 5,000 Model 3s per week by the end of 2017. FE1 stated that Musk then forced Ensign out of
19 the Company. Ensign left Tesla in May 2016.
20 131. After his resignation, FE1 has continued to speak with former colleagues at Tesla
21 in positions giving them access to the information FE1 now reports. FE1 learned recently that
22 Musk is now expanding the manufacturing area for the Model 3, as well as taking other steps FE1
23 recommended, and Musk rejected, during FE1’s tenure at Tesla.
24 132. FE1 stated that as Musk knew the announced production timeline was false, he was
25 not telling the truth to the public when he stated that current conditions meant that 5,000 Model 3s
26 per week would be manufactured by the end of 2017.
27 133. FE2 was a Senior Project Engineer in Material Flow Engineering for the Model 3
28 at Tesla’s Fremont plant from April 2014 to June 2016. FE2 reported to Govin Ranganathan,
Engineering Manager, Material Flow Engineering, and to Kevin Vliet, Director, Material Flow

27
Case 3:17-cv-05828-CRB Document 24 Filed 03/23/18 Page 28 of 73

1 Engineering. Vliet reported to Greg Reichow, Vice President of Production between June 2013

2 and July 2016. Reichow reported directly to Elon Musk.
3 134. FE2’s job was to conceptualize, plan and discuss solutions with suppliers for parts
4 of the production line for the Model 3. FE2 focused on areas of the production line for assembly,
5 receiving the battery packs, and distribution of car parts into and out of the warehouse.
6 135. FE2 and her team dealt with numerous suppliers who would be building and/or
7 installing the equipment, automation and robots that would comprise parts of the Model 3
8 production line. FE2 stated that as of June 2016, FE2 and her team had not yet even finalized their
9 plans for the production line, nor settled on all of the suppliers for the equipment and/or solutions.
10 136. FE2 stated that Tesla’s Model 3-related suppliers, including Ilseman, Intelligrated,
11 and Thematic, told Tesla that the timelines Tesla wanted them to meet were “impossible,” and
12 could not be met. FE2 stated that in conversations with colleagues for other sections of the as-yet
13 unbuilt production line, those colleagues told FE2 that suppliers they were dealing with were
14 telling them the exact same thing.
15 137. When FE2 left Tesla in June 2016, construction of the production line for the Model
16 3 had not yet begun. FE2 described the production concept for most of the different sections of the
17 line as more “conceptual” than practical through the end of FE2’s tenure at Tesla.
18 138. When FE2 left Tesla in June 2016, only one company had a completed contract
19 with Tesla to supply equipment for the production line.
20 139. FE2 stated that everyone, including FE2, knew that the Company would not be
21 producing 5,000 Model 3s per week by the end of 2017. FE2 stated that it would take 18-24 months
22 to construct the system and get it up and running and ready for production to begin. Suppliers were
23 telling FE2 that lead times for obtaining materials for the equipment, and then building the
24 equipment, was at least six months. FE2 stated that delivering, installing, and programming the
25 line in the Fremont facility would take at least an additional six to twelve months. Another several
26 months would be needed to work the bugs out of the production line.
27 140. Further, FE2 stated that Tesla would be dealing with hundreds, or thousands, of
28 vendors, each with a different role in building the assembly line. Suppliers were telling FE2 and
Tesla that having to share the space with other workers carrying out different tasks would

28
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1 complicate their ability to complete their work timely, and that as workers with different

2 responsibilities would be working in the same space at the same time, the process would take even
3 longer. 42
4 141. FE2 reported to her supervisors what suppliers were saying about their lead times
5 for the equipment and their inability to meet Tesla’s timelines. FE2 stated that Tesla was aware of
6 these timelines and difficulties. FE2 stated that based on FE2’s and Tesla’s experience in building
7 the production line for the Models S and X, Defendants understood how difficult and time-
8 consuming the process would be.
9 142. When FE2 left Tesla in June 2016, FE2’s team had not yet finalized plans for
10 building the production line, or settled on all of the suppliers for equipment and/or solutions. Based
11 on conversations FE2 had after FE2’s departure from Tesla with former colleagues who were still
12 employed by Tesla and in positions to know the information FE2 reports, the plans for the
13 production line were still not finalized as of July or August of 2016.
14 143. By 2017, just before and during the Class period, the detailed warnings from FE1
15 and FE2, some spoken directly to Musk himself, were proving to be true. Even as Defendants
16 bragged, during the Class Period, about progress that had already been achieved on Tesla’s most
17 important project, the reality in Fremont and at the Gigafactory was far more grim, and visible to
18 anybody visiting the facilities.
19 144. FE3 worked at Tesla from August 2012 to Oct. 18, 2017, or nearly through the end
20 of the Class Period. FE3 began employment as a production associate in Fremont, was promoted
21 to Team Leader, and in October 2015 was promoted to Production Supervisor - General Assembly
22 for Tesla’s luxury Models S and X at the Fremont factory. As a Production Supervisor, FE3
23 reported to Corey Shaw, Assistant Manager. Shaw reported to Ventura Diaz, Unit Leader, who
24 reported to Mario Panera, Production Manager - General Assembly at Tesla. FE3 stated that the
25 Model 3 production line was constructed in the same building as Models S and X.
26
27
28 42
On July 28, 2017, at the “handover” event, Musk confirmed FE2’s statement about the number
of parts and vendors, stating that “there are 10,000 unique parts in a Model 3, and these are
coming from all over the world.”

29
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1 145. From FE’s vantage point working as a Production Supervisor, every day, FE3 could

2 observe the section of the uncompleted Model 3 assembly line where Tesla constructed the chassis,
3 including the battery pack, suspension, and brake hubs. During the entirety of his employment,
4 until October 18, 2017, FE3 never saw a single Model 3 being constructed on the assembly line.
5 146. FE3 stated that the only personnel on the Model 3 assembly line were construction
6 and engineering personnel, responsible for designing and building the line.
7 147. FE3 stated that the Model 3 production line was not yet operational when he left
8 the company in mid-October 2017. FE3 noted that had cars been produced on the Model 3
9 assembly line, FE3 would not only have seen the automated production line actually working, but
10 would also have seen some of the vehicles in what was called the “yard,” an area where cars
11 needing a part or system tweaked, e.g., an air leak in a window seal, were placed after being
12 removed from a working assembly line.
13 148. As of his departure in October 2017, FE3 stated that the Model 3’s “body in white
14 line,” where the vehicle’s body was welded together, was not operational. That section of the
15 factory was still fenced off when FE3 left.
16 149. An October 6, 2017 Wall Street Journal article confirms FE3’s observations and
17 knowledge about the “body in white line.” In the October 6, 2017 article, entitled “Behind Tesla’s
18 Production Delays: Parts of Model 3 were Being Made by Hand,” 43 the Journal reported that it
19 interviewed multiple workers who stated that:
20 equipment for the so-called body-in-white line for the Model 3, where the
21 car body’s sheet metal is welded together, wasn’t installed until by around
22 September. They guessed at least another month of work remained to
23 calibrate the tools.
24 150. FE3 stated that it was common knowledge at the Fremont facility that construction
25 and assembly of the automated production line for the Model 3, whose assembly only started
26 towards the very end of FE3’s tenure at Tesla, was delayed, and not yet completed.
27
28
43
https://www.wsj.com/articles/behind-teslas-production-delays-parts-of-model-3-were-being-
made-by-hand-1507321057

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1 151. FE3 further stated that around September 2017, the Company began terminating

2 many employees working on the Model 3 production team. FE3 attributed these terminations to
3 the production delays, as since the production line was not operational, the Company did not need
4 large numbers of production employees. FE3 estimated that the company terminated the jobs of
5 about 200 employees in the period shortly before FE3 ceased working at Tesla. 44
6 152. FE3 also reported a startling fact, not evident from any of Defendants’ statements:
7 during the Class Period, Model 3s were not being made at all on an automated line. Rather, they
8 were produced in Fremont’s “beta” or “pilot” shop, which is where prototypes and test versions of
9 the Model 3 were constructed.
10 153. Multiple former Tesla employees confirm this claim. FE4 was a Manufacturing
11 Engineer working on production of the Model 3 from March 2017 to June 2017. FE4 worked in
12 the pilot shop, and reported to Richard Castro, supervisor of the pilot shop. The pilot shop is located
13 in an extension of the main building in Fremont, separated from the main building by a wall and
14 door. The pilot shop was where Model 3 prototypes, or test cars, were built.
15 154. FE4 was a “process owner” of an area of assembly of the Model 3. The process
16 owner was the team leader during a particular shift.
17 155. FE7 also worked in the pilot shop, from February 2017 through the end of June
18 2017, during the same shift as FE4. FE7 was hired through a temp agency, and was responsible
19 for welding together the outer layers of the Model 3. FE7 reported to supervisor Richard Castro,
20 who reported to Mike Lazaro.
21 156. FE4’s team was responsible for the first part of the assembly process of the Model
22 3, installing all of the fasteners, including screws, bolts, and nuts. As “process owner” other team
23 members came to FE4 for parts, questions, and to report problems. FE4 reported to a manager on
24 behalf of the team, and spoke with the leader of the next shift at the end of FE4’s shift.
25
26 44
FE3’s recollection about mass firings is correct. Fortune.com reported that in early October,
2017, Tesla fired 400-700 workers, including in Fremont. See “Tesla Fires Hundreds of Workers
27 After Their Annual Performance Review, http://fortune.com/2017/10/13/tesla-fires-employees/.
Many of the fired workers alleged that they were laid off, unrelated to performance reviews. See
28 “Tesla Employees Detail how they Were Fired, Claim Dismissals Were Not Performance
Related,” https://www.cnbc.com/2017/10/17/tesla-firings-former-and-current-employees-
allege-layoffs.html.

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1 157. When FE4 left in June 2017, after Defendants had already told investors that

2 advancement in the Fremont facility and at the Gigafactory showed that the Company was “on
3 track” to mass produce the Model 3 in 2017, FE4 states that all Model 3s were being constructed
4 in the pilot shop, mostly by hand. A total of 120-130 Model 3s had been built. The pilot shop
5 typically completed 3-5 skeletons of cars per day, with a target of 15-20 per week. The finishing
6 touches were completed in another area, and that work was also done mostly by hand, and not on
7 the automated production line that was still under construction. FE4 stated that the number of
8 production associates in the pilot shop far exceeded the personnel needed to produce the small
9 number of Model 3s actually produced. Production associates sometimes spent their entire shifts
10 cleaning, and some were loaned to the Models S and X production lines.
11 158. FE7 confirmed that through June 2017, Model 3s were still being built by hand in
12 the pilot shop. FE7 further confirmed that in FE7’s last month of employment, the pilot shop was
13 producing 10-15 Model 3s per week. Those vehicles were used for testing, displays and
14 presentations.
15 159. As a process owner, FE4 regularly entered the main factory area where the Model
16 3 automated line was under construction, in order to obtain parts from inventory. FE4 further
17 passed the area where the automated production line was being constructed each day in order to
18 get to her work area. FE4 was able to observe the construction progress on the automated line on
19 a daily basis.
20 160. During FE4’s tenure at Tesla, which overlapped with the Class Period, the fully
21 automated line for producing Model 3s was never in operation, as it was still under construction.
22 FE4 said that the delays were openly visible to anyone in the factory who saw the production line.
23 161. FE4 stated that construction of the permanent line was significantly delayed. FE4
24 spoke with the workers constructing the automated line, who stated that the line was not even close
25 to being completed, and that it would not be completed in 2017, and perhaps not until as late as
26 May 2018. Tesla was not providing the workers constructing the line with instructions in an
27 efficient manner. These workers often had no work to do, as it was assigned to them on a day-to-
28 day basis, and no work to do after the mid-point of their shifts.

2 during an informal conversation that the new projection for completion of the automated line was
3 in 2018. FE4 also heard pilot shop supervisors state that the projection was a 2018 finish date,
4 including during an informal conversation with supervisor Castro. FE4 further named Mike Lazaro
5 and Curtis Hutchins as managers who were contemporaneously aware of delays of the Model 3
6 production.
7 163. FE7 stated that the engineers building the production line spoke with his managers,
8 including Castro and Lazaro, about the progress of the automated line. FE7 stated that it was
9 commonly known by even the lowest ranked employees that the production line was in the very
10 early stages of construction, as construction had not begun until April or May 2017, and was
11 nowhere near completion.
12 164. FE5 was a Robot Programmer on the Model 3 production line at Tesla’s Fremont
13 plant from June or July 2017 to September 2017. FE5 worked for Chicago Robot Works (“CRW”),
14 which was a subcontractor to Comau, an Italian multinational specializing in industrial automation.
15 Tesla hired Comau to install the automated machinery and robotics for the Model 3 production in
16 Fremont. FE5 reported directly to a Comau supervisor.
17 165. CRW and Comau were already installing the automated robotics for the Model 3
18 production line at the Fremont plant when FE5 arrived in June or July 2017. Installation was not
19 yet complete.
20 166. FE5’s job was to pre-program and program robots on the “body shop” section of
21 the production line, where Model 3 body parts would be welded together. FE5 worked amongst,
22 but not with, Tesla engineers. FE5 estimated that the body shop production line alone had about
23 100 robots.
24 167. When FE5 left Tesla’s facility in early September 2017, the body shop for the
25 Model 3 was not yet fully automated, nor was it near completion. It was unclear how much more
26 time would be necessary to achieve full automation of the body shop, though based on his
27 knowledge of the requirements, FE5 estimated that the full production line was approximately
28 45% finished.

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1 168. FE5 stated that some robot parts for which Tesla was awaiting delivery when he

2 first arrived at the facility had still not arrived when he left in September 2017. FE5 understands
3 that the parts supplier for the robots being installed in the Fremont facility was itself waiting for
4 parts to be delivered to it.
5 169. FE5 did not know where Model 3s were being built since the full production line
6 was not near completion. However, FE5 stated that Model 3s were not being built in the building
7 where the automated production line for the Model 3 was being installed.
8 170. FE6 worked on the Processing and Manufacturing teams for the Model 3 at Tesla’s
9 Fremont plant from May 2016 to January 2017. FE6 reported to Shawn Hensen, Manager of Body
10 Engineering, and to Matt Higgins, Manager of Body Advanced Engineering.
11 171. Beginning in July 2016, FE6 worked in the pilot shop helping to build the rear
12 underbody of the car. FE6 said that between mid-2016 and early 2017 the team in the pilot shop
13 was building Model 3 test cars, called the C-Sample (previous versions were called the B-Sample),
14 that would be put through various manufacturing and functional tests as part of finalizing the
15 Model 3 design for mass production. FE6 thus confirms FE1’s statement that as of July 2016, Tesla
16 did not yet even have a finalized design for mass production of the Model 3.
17 172. FE6 stated that in or around September 2016, the manufacturing team was told to
18 make twenty C-Samples that would be sent for crash tests, tests for installation and functionality
19 of the battery pack and tests of paint coating, among others. The goal of making 20 C-samples was
20 later reduced to making just 3 C-Samples, because the stamping department, which supplied many
21 of the parts, only produced enough parts to make that many.
22 173. FE6 stated that most large car manufacturers outsource the stamping to mass
23 production plants in China, but Tesla was doing it in-house. The Company, therefore, faced big
24 delays whenever a machine went down or it could not produce sufficient quantities of what was
25 needed. FE6 stated that Tesla used data from B-samples in lieu of the necessary testing to finalize
26 the Model 3 design.
27 174. FE6 stated that during FE6’s last several months at Tesla, everyone at the Fremont
28 plant, including Musk, was aware that the Company would not be able to produce 5,000 Model 3s
a week by the end of 2017, and that the timeline was unrealistic.

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1 175. FE6 recalled a conversation with William Zochodne, a senior manufacturing

2 engineer who attended meetings with Musk. Zochodne expressed that the deadlines for production
3 were unrealistic, and wondered aloud when Musk would change the timeline and admit that
4 producing 5,000 Model 3s per week in 2017 would not happen.
5 176. The lack of progress in completing automated production lines, necessary for
6 achieving mass production of the Model 3, was not a surprise to Defendant Musk, as Musk
7 regularly visited the Fremont facility.
8 177. FE3 stated that Musk visited the Fremont factory every Wednesday, and that
9 Wednesdays were referred to internally as “Elon Day.” FE3 stated that in advance of Musk’s visits,
10 Unit Leaders sent group texts alerting employees that Musk would be visiting, and included
11 reminders/instructions such as “make sure your areas are clean. The boss is here.” FE3 saw Musk
12 in the factory meeting room on numerous occasions.
13 178. FE3 understood that after it was clear that Model 3 production and the production
14 line itself were delayed, Musk convened a meeting where Musk yelled at Model 3 managers about
15 the delays.
16 179. FE2 confirmed that Musk visited the Fremont plant once a week, on Wednesdays,
17 to speak with lead employees about the Models S, X and 3. FE2 stated that FE2’s superiors were
18 informed of what the suppliers told FE2. FE2 understood that those concerns were raised with
19 Musk by superiors during Musk’s visits to the Fremont facility.
20 180. FE6’s desk was in close proximity to employee meeting rooms, and FE6 saw Musk
21 regularly, for meetings with plant directors from engineering, manufacturing and other
22 departments to discuss, among other things, Comau’s budget for installing the production line
23 robots and the timeline for when the line could be up and running.
24 181. Despite Musk’s statement to investors during the Class Period that battery
25 production at the Gigafactory was making “great progress,” the production problems in Nevada
26 were at least as dire as those in Fremont, and it was plain to anybody visiting the Nevada facility
27 that Tesla would not mass produce batteries for the Model 3 in 2017.
28

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1 182. FE8 was a Quality Technician who trained Line Inspectors at the Gigafactory in

2 Nevada, from January of 2014 through September 2017, through most of the Class Period. FE8
3 reported to a manager, Guillermo Gutierrez, and to a supervisor, Anthony D’Amico.
4 183. FE8 stated that each Model 3 battery pack consisted of four modules, each of which
5 was approximately 5-6 feet long. Each module contained approximately 20,000 batteries that were
6 glued together. Workers were required to inspect alignment of the batteries and measure and test
7 the coolant tubes.
8 184. FE8 stated that each Model 3 module was vertically aligned in order for the pack
9 to be placed in the bottom of the vehicle. The battery pack was designed to run the length of the
10 car, from the rear wheels to the front wheels. The battery pack consisted of a clamshell on top, and
11 other wiring and bonding. A bandolier, produced at the end of the assembly line, secured the
12 batteries in the enclosure.
13 185. FE8 stated that the batteries and modules were required to pass several inspection
14 stages, and that there was a high failure rate for the modules produced for the Model 3 during
15 FE8’s entire three year tenure at the Gigafactory. Each module was inspected at a sub-assembly
16 location and inspectors signed off on the inspection and recorded the serial numbers for each
17 module. If the height of even a single battery was incorrect during the sealing process, the entire
18 module would be discarded. FE8 stated that high failure rates and module issues persisted during
19 all of FE8’s employment. Modules that did not pass inspection were sent to the “Non-Comforming
20 Material” area of the Gigafactory facility.
21 186. FE8 further stated that production downtime was common, often lasting 7-8 hours,
22 due mainly to a lack of parts, inadequate machine programming, and automation problems.
23 187. FE9 was a Process Technician for Tesla at the Gigafactory location in Nevada from
24 March of 2017 until October of 2017, assigned to the Model 3 production team. FE9 observed
25 workers on and off the assembly line during both manual and automated assembly.
26 188. When FE9 began working in March 2017, all battery module assembly was manual,
27 a process FE9 described as “messy.” Automated production lines were being built during most of
28 FE9’s tenure at Tesla, and partial automated battery production, which did not encompass all of
the production process, did not even begin until September 2017.

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1 189. At the end of the Class Period, the CEO of Tesla’s Gigafactory partner, Panasonic,

2 confirmed FE9’s statement that battery production to that point was not automated. 45
3 190. According to FE9, the Gigafactory was plagued by problems related to producing
4 usable modules, and the first battery module was completed long past the deadline when the Model
5 3 was supposed to have been launched. The process required applying adhesive at a specific ratio,
6 which if not done properly caused the batteries to “fall off.” Parts and spaces between parts were
7 small, making correct module completion challenging. FE9 stated that prior to automated
8 production, human error resulted in poorly produced modules “all the time,” with workers rushing
9 products through the line, assuming problems “would fix [themselves],” which they did not.
10 191. FE8 stated that further delays were caused by Panasonic, Tesla’s partner in the
11 Nevada Gigafactory, because Panasonic batteries contained metal fibers, and Panasonic employees
12 were required to check every pallet of modules to confirm there were no sealing problems with the
13 metal fibers.
14 192. FE9 also recalled that the partial automated production, once it finally began in
15 September 2017, was plagued with production problems. Many of the specifications were
16 incorrect, the automated lines did not work properly, and specific production issues persisted,
17 including insufficient quantities of adhesive. Further delays and production problems were a result
18 of inexperienced employees who did not receive adequate training.
19 193. FE8 corroborated this account of automation-related malfunctions, stating that
20 some problems were caused by incorrect programming, in Germany, of German-sourced
21 machines. FE8 stated that machines were constantly being re-programmed.
22 194. FE8 stated that Gigafactory workers were brought in from Intellisource and other
23 temp agencies, leading to high turnover and a negative effect on production. FE8 recalled busloads
24 of approximately 27-30 workers arriving at the Gigafactory from temp agencies, and that number
25 being weeded out to 3-4 total workers in just two to three weeks.
26 195. During FE9’s tenure, which lasted almost to the end of the Class Period, the
27 Gigafactory produced no more than two battery packs, at most, per day, sufficient for two cars.
28
45
See https://arstechnica.com/cars/2017/10/production-problems-at-teslapanasonic-gigafactory-
may-be-at-an-end/.

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1 Realistically, it took a full day – comprised of two shifts – to produce a single battery pack, and,

2 even then, it was not a “customer saleable pack,” i.e., a pack that passed inspection and was ready
3 to be installed in the Model 3.
4 196. The only “customer saleable pack” was completed in October 2017, shortly before
5 FE9 left Tesla. A company-wide email was sent congratulating the engineers and production
6 workers for their hard work.
7 197. FE10 was a Production Associate at the Gigafactory from October 2017 to January
8 2018. FE10 reported to Production Supervisor Timothy Mosher.
9 198. FE10 worked on a battery production line applying glue to the windows of the
10 battery. The battery packs that were assembled on FE10’s line arrived in an elevator. The person
11 next to FE10 scanned the battery into the computer system, and the battery was cleaned at the end
12 of the line.
13 199. FE10 described frequent production stoppage due to equipment breakdown, and
14 line workers being “starved for work.” Malfunctioning equipment included facility elevators, and
15 production machines. A shutdown of any part of the line process stopped work on the entire line.
16 200. FE11 worked as a Materials Handler at the Gigafactory from December 2016 to
17 January 2018. FE11 reported to Material Flow Manager Scott Dowler.
18 201. FE11 confirmed that very few Model 3 batteries were completed during the Class
19 Period. FE11 recalled 14 production lines, each with 5-6 Tesla employees. Panasonic employees
20 would deliver batteries to the Tesla employees, who assembled each battery pack.
21 202. FE11 stated that it took 1-2 weeks for each production line at the Gigafactory to
22 produce one (1) finished battery, so no more than 14 finished Model 3 batteries were completed
23 every 1-2 weeks.
24 203. FE11 stated that it was not uncommon to receive faulty modules, which were sent
25 to technicians to fix. Problems ranged from leakage, to parts of incorrect size, to broken or
26 malfunctioning parts. It took approximately a full week to resolve any issues that arose on the line.
27 204. FE11 confirmed FE8’s statement that Tesla brought in temp workers from staffing
28 agencies, and that Tesla did a poor job training the workers.

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1 205. As with Musk’s weekly visits to the Fremont facility, where the lack of a

2 functioning automated production line was obvious to anybody present, so too did Defendant
3 Musk personally observe the complete lack of mass production of Model 3 batteries at the
4 Gigafactory in Nevada during the Class Period.
5 206. Musk bragged to all of his Twitter followers that during at least part of the Class
6 Period, he was sleeping in the Gigafactory, as that allowed him to be more efficient and avoid
7 driving 30 minutes to Reno and the nearest hotel. Musk posted a photo to Instagram of himself
8 and others drinking whiskey around a fire on the roof of the Gigafactory, singing Johnny Cash
9 songs. 46
10 207. Even if automated, the Gigafactory could never have produced 5,000 Model 3
11 batteries per week during 2017, a fact Defendants admitted long after the end of the Class Period.
12 In an 8-K filed on February 9, 2018, Tesla had to “clarify” a statement made by Defendant Musk
13 during a conference call two days earlier, on February 7, 2018, concerning battery production
14 capacity at the Gigafactory in February 2018:
15
16 Tesla, Inc. is clarifying the following statement made by Elon Musk, Tesla’s
17 Chief Executive Officer, during Tesla’s fourth quarter and full year 2017
18 financial results conference call held on February 7, 2018:
19 “[We] expect the new automated lines to arrive next month in March. And
20 then it's already working in Germany so that’s going to be disassembled,
21 brought out to the Gigafactory and reassembled and then go into operation
22 at the Gigafactory. It's not a question whether it works or not. It's just a
23 question of disassembly, transport and reassembly. So we expect to alleviate
24 that constraint. With alleviating that constraint, that's what gets us to the
25 roughly 2,000 to 2,500 unit per week production rate.”
26
27
28
46
See “Elon Musk is Sleeping in the Tesla Factory Again,” https://www.gearbrain.com/elon-
musk-sleep-tesla-factory-2502241359.html.

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1 The “2,000 to 2,500” units per week cited in this comment refers solely to the

2 capacity of the additional automated battery module manufacturing
3 equipment that is currently located in Germany, and not to Tesla’s total Model
4 3 production run rate or to the capacity of the automated battery module
5 equipment that is already present at Gigafactory 1. Tesla’s ability to meet its
6 target of 2,500 per week by end of Q1 2018 is not dependent on the additional
7 equipment that is currently located in Germany, as that equipment is expected
8 to start ramping production during Q2 2018. With respect to battery module
9 production, Tesla’s ability to meet its target of 2,500 per week by end of Q1
10 2018 is dependent only on the equipment that is already present at Gigafactory
11 1, as well as the incremental capacity that is currently being added through
12 the semi-automated lines that were also discussed during the conference call.
13 (emphasis in original).
14 208. Thus, more than three months after the end of the Class Period, Defendants
15 admitted that production equipment required to even start to think about producing 5,000 Model 3
16 batteries in a week was still in Germany in February 2018.
17 MATERIALLY FALSE AND MISLEADING STATEMENTS AND OMISSIONS ISSUED
18 DURING THE CLASS PERIOD
19 209. The Class Period begins on May 3, 2017. On that date, after the close of the market,
20 Tesla filed with the SEC its “Tesla First Quarter 2017 Update” as Exhibit 99.1 to an 8-K. The
21 document was signed by Defendants Musk and Ahuja. Directly referencing actual facts on the
22 ground with respect to completion of the automated line meant to produce the Model 3, the
23 Company stated that:
24 [P]reparations at our production facilities are on track to support the ramp
25 of Model 3 production to 5,000 vehicles per week at some point in 2017, and
26 to 10,000 vehicles per week at some point in 2018.
27 210. The foregoing was false and misleading because, as described in detail above,
28 Defendants knew or were reckless in not knowing that Tesla could not mass produce the Model 3
in 2017 because:

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1 • Tesla executives had informed the Company that mass production of the

2 Model 3 in 2017 was impossible;
3 • The automated production line in Fremont was not built, or close to
4 completion, in May 2017;
5 • There was no automated production line at the Gigafactory, nor were
6 automated lines close to completion;
7 • Production equipment necessary to mass produce Model 3 batteries at the
8 Gigafactory was still in Germany;
9 • Preparations at the Fremont and Nevada production facilities were woefully
10 short of being “on track” to support mass production of the Model 3 in 2017, much less production
11 of 5,000 Model 3s a week at any time in 2017.
12 • The Individual Defendants were personally aware from eyewitness
13 observation of both the Fremont and Nevada facilities that the automated lines in Fremont and in
14 Nevada were not completed, or near completion, and that mass production of the Model 3 was not
15 possible in 2017, much less production of 5,000 Model 3s a week at any time in 2017;
16 • During the Class Period there were no fully functioning automated lines to
17 produce the sufficient numbers of Model 3 car bodies in Fremont for mass production, or fully
18 functioning automated lines to produce sufficient batteries for mass production in the Gigafactory.
19 211. Later that same day, during the May 3, 2017 Conference Call, held after the close
20 of the market, Defendant Musk engaged in a colloquy with Deutsche Bank AG analyst Rod
21 Avraham Lache, as follows:
22 Lache: A couple remaining questions. Just one is, since the Model 3 is maybe
23 2 or 3 months away, could you just give us a sense of what some of the most
24 critical outstanding items are that are going to gate the commercial launch
25 timing? And now that there are actual physical test vehicles on the road, are
26 there any significant changes happening?
27 Musk: Well, actually it seems to be -- we're not really seeing any significant
28 change that needs to occur with Model 3. So it's coming in as expected, as
the design continuation has predicted, it's getting pretty close to the bull's-eye,

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1 and I'm not aware of anything that would affect our prior statements about

2 volume target.
3
4 Lache: So there's nothing outstanding vis-à-vis tooling, deliveries or things
5 like that, that you're still viewing as a critical item with some uncertainty?
6 Musk: There's plenty of things with uncertainty, but I don't know anything
7 that would prevent us from starting firstly in July, and exceeding 5,000
8 units per week by the end of the year. There may be some cost up there, I just
9 don't know of what that is today.
10 212. The foregoing statements were false and misleading because, as described in detail
11 above, Defendants knew or were reckless in not knowing that Tesla could not mass produce the
12 Model 3 in 2017 because:
13 • During the Class Period there were no fully functioning automated lines to
14 produce the sufficient numbers of Model 3 car bodies in Fremont for mass production, or fully
15 functioning automated lines to produce sufficient batteries for mass production in the Gigafactory;
16 • Tesla executives had informed the Company that mass production of the
17 Model 3 in 2017 was impossible;
18 • The automated production line in Fremont was not built, or close to
19 completion, in May 2017;
20 • There was no automated production line at the Gigafactory, nor were
21 automated lines close to completion;
22 • Production equipment necessary to mass produce Model 3 batteries at the
23 Gigafactory was still in Germany;
24 • Preparations at the Fremont and Nevada production facilities were woefully
25 short of being “on track” to support mass production of the Model 3 in 2017, much less production
26 of 5,000 Model 3s a week at any time in 2017;
27 • The Individual Defendants were personally aware from eyewitness
28 observation of both the Fremont and Nevada facilities that the automated lines in Fremont and in
Nevada were not completed, or near completion, and that mass production of the Model 3 was not

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1 possible in 2017, much less production of 5,000 Model 3s a week at any time in 2017, therefore

2 Defendants were indeed aware of “anything” that might prevent mass production of the Model 3
3 in 2017.
4 213. On May 10, 2017, after the close of the market, Tesla filed a quarterly report on
5 Form 10-Q with the SEC, announcing the Company’s financial and operating results for the quarter
6 ended March 31, 2017 (the “first quarter 2017 10-Q”). The 10-Q was signed by Defendant Ahuja.
7 214. During the May 3, 2017 Conference Call, Musk, discussing Tesla’s actions with
8 the Model 3 and comparing it to the Model X, stated:
9 X became kind of like a technology bandwagon of every cool thing you can imagine
10 all at once. It's like everything all at once. That was a terrible strategy. You really
11 want to start off simple and add things over time. But that was some hubris and real
12 overconfident there. So with Model 3 it's the opposite. We've designed it to be easy
13 to make. We've got I think a much better supply chain in place where we've got
14 the A team from the A suppliers. We didn't have that for the Model X or the S.
15 And as far as we know, there are no issues.
16 215. The foregoing statement was false and misleading because, as described in detail
17 above, Defendants knew or were reckless in not knowing that Tesla could not mass produce the
18 Model 3 at any time in 2017 because:
19 • Tesla did not have a supply chain in place at the start of the Class Period,
20 so Defendants were aware of serious “issues” with suppliers. Contracts for all necessary suppliers
21 had not been finalized;
22 • Parts necessary for constructing the automated production line in Fremont
23 had not been delivered, and some would not arrive for months;
24 • Suppliers had informed Tesla that the production timelines were
25 impossible;
26 • The automated production line in Fremont was not built, or close to
27 completion, in May 2017;
28 • There was no automated production line at the Gigafactory, nor were
automated lines close to completion;

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1 • Production equipment necessary to mass produce Model 3 batteries at the

2 Gigafactory was still in Germany;
3 • Preparations at the Fremont and Nevada production facilities were woefully
4 short of being on track to support mass production of the Model 3 in 2017, much less production
5 of 5,000 Model 3s a week at any time in 2017;
6 • The Individual Defendants were personally aware from eyewitness
7 observation of both the Fremont and Nevada facilities that the automated lines in Fremont and in
8 Nevada were not completed, or near completion, and that mass production of the Model 3 was not
9 possible in 2017, much less production of 5,000 Model 3s a week at any time in 2017, therefore
10 Defendants were aware of “anything” that might prevent mass production of the Model 3 in 2017.
11 216. In the first quarter 2017 10-Q, the Company stated, in relevant part:
12 In the first quarter of 2016, we unveiled Model 3, a lower priced sedan
13 designed for the mass market. Model 3 vehicle development is nearly
14 complete as we approach the start of initial production in July of this year.
15 Release candidate vehicles, built using production-intent tooling and
16 processes, are being tested to assess fit and finish, to support vehicle software
17 development and to ensure a smooth and predictable homologation process.
18 Road testing is also underway to refine driving dynamics and ensure vehicle
19 durability. Simultaneously, preparations at our production facilities are
20 progressing to support the ramp of Model 3 production to 5,000 vehicles per
21 week at some point in 2017 and to 10,000 vehicles per week at some point in
22 2018. We are working closely with all Model 3 suppliers to ensure their
23 readiness ahead of the start of production.
24 217. The foregoing was false and misleading because, as described in detail above,
25 Defendants knew or were reckless in not knowing that Tesla could not mass produce the Model 3
26 in 2017 because:
27 • Preparedness for mass production at both the Fremont and Nevada facilities
28 was non-existent. Fully functioning automated lines were not completed, or close to being
completed, and would not support mass production of Model 3s in 2017, much less production of

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1 5,000 Model 3s a week at any time in 2017. All Model 3 were being constructed by hand in the

2 Fremont pilot shop;
3 • The Individual Defendants were personally aware from eyewitness
4 observation of both the Fremont and Nevada facilities during the Class Period that there were no
5 fully functioning automated lines to produce the sufficient numbers of Model 3 car bodies in
6 Fremont for mass production, or fully functioning automated lines to produce sufficient batteries
7 for mass production in the Gigafactory, and that “preparations” were not “progressing”;
8 • Tesla did not have a supply chain in place at the start of the Class Period,
9 so Defendants were aware of serious problems with suppliers. Contracts for all necessary suppliers
10 had not been finalized;
11 • Parts necessary for constructing the automated production line in Fremont
12 had not been delivered, and some would not arrive for months;
13 • Suppliers had informed Tesla that the production timelines were
14 impossible;
15 • The automated production line in Fremont was not built, or close to
16 completion, in May 2017;
17 • There was no automated production line at the Gigafactory, nor were
18 automated lines close to completion;
19 • Production equipment necessary to mass produce Model 3 batteries at the
20 Gigafactory was still in Germany;
21 • “Preparations” at the Fremont and Nevada production facilities were
22 woefully short of being on track to support mass production of the Model 3 in 2017, much less
23 production of 5,000 Model 3s a week at any time in 2017.
24 218. The May 10, 2017, first quarter 2017 10-Q included the following “risk factor”:
25 We may experience delays in realizing our projected
26 timelines and cost and volume targets for the production, launch and
27 ramp of our Model 3 vehicle, which could harm our business, prospects,
28 financial condition and operating results.

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1 Our future business depends in large part on our ability to execute on our

2 plans to develop, manufacture, market and sell the Model 3 vehicle, which we
3 intend to offer at a lower price point and to produce at significantly higher
4 volumes than our present production capabilities for the Model S or Model X
5 vehicles. We unveiled a prototype of Model 3 in March 2016 and have
6 announced our goal to achieve volume production and deliveries of this
7 vehicle in the second half of 2017. (emphasis in original).
8 219. The foregoing risk disclosure was false and misleading because, as described in
9 detail above, Defendants knew or were reckless in not knowing that events had already occurred
10 that prevented Tesla from mass producing the Model 3 at any time on or around December 31,
11 2017 because:
12 • Defendants knew or recklessly disregarded that this general risk factor had
13 already occurred, and that mass production of Model 3s would not and could not happen in 2017,
14 much less production of 5,000 Model 3s a week at any time in 2017. Defendants were duty bound,
15 but failed, to disclose that the specific adverse event the Company was warning of hypothetically
16 had already transpired, rendering the foregoing risk disclosures false and misleading;
17 • Preparedness for mass production at both the Fremont and Nevada facilities
18 was non-existent. Fully functioning automated lines were not completed, or close to being
19 completed, and would not support mass production of Model 3s in 2017, much less production of
20 5,000 Model 3s a week at any time in 2017. All Model 3 were being constructed by hand in the
21 Fremont pilot shop;
22 • The Individual Defendants were personally aware from eyewitness
23 observation of both the Fremont and Nevada facilities during the Class Period that there were no
24 fully functioning automated lines to produce the sufficient numbers of Model 3 car bodies in
25 Fremont for mass production, or fully functioning automated lines to produce sufficient batteries
26 for mass production in the Gigafactory, and that “preparations” were not “progressing”;
27 • Tesla did not have a supply chain in place at the start of the Class Period,
28 so Defendants were aware of serious problems with suppliers. Contracts for all necessary suppliers
had not been finalized;

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1 • Parts necessary for constructing the automated production line in Fremont

2 had not been delivered, and some would not arrive for months;
3 • Suppliers had informed Tesla that the production timelines were
4 impossible;
5 • The automated production line in Fremont was not built, or even close to
6 completion, in May 2017;
7 • There was no automated production line at the Gigafactory, nor were
8 automated lines close to completion;
9 • Production equipment necessary to mass produce Model 3 batteries at the
10 Gigafactory was still in Germany;
11 • Preparations at the Fremont and Nevada production facilities were woefully
12 short of being on track to support mass production of the Model 3 in 2017, much less production
13 of 5,000 Model 3s a week at any time in 2017.
14 220. The first quarter 2017 10-Q included the following statement:
15 Although we continue to remain on track with our progress at Gigafactory
16 1, given the size and complexity of this undertaking, it is possible that future
17 events could result in the cost of building and operating Gigafactory 1
18 exceeding our current expectations and Gigafactory 1 taking longer to expand
19 than we currently anticipate. In addition, we continue to expand production
20 capacity at our Fremont Factory and are exploring additional production
21 capacity in Asia and Europe.
22 221. The foregoing statement was false and misleading because, as described in detail
23 above, Defendants knew or were reckless in not knowing that Tesla could not mass produce the
24 Model 3 at any time on or around December 31, 2017 because:
25 • During the Class Period there were no automated lines producing batteries
26 in the Gigafactory, much less process sufficient for mass production of batteries;
27 • Progress at the Nevada production facility was woefully short of being “on
28 track” to support mass production of the Model 3 in 2017, much less production of 5,000 Model
3s a week at any time in 2017;

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1 • The Individual Defendants were personally aware from eyewitness

2 observation of the Nevada facility during the Class Period that there were fully functioning
3 automated lines to produce sufficient batteries for mass production in the Gigafactory, and that
4 “progress” was not “on track”;
5 • Tesla did not have a supply chain in place at the start of the Class Period,
6 so Defendants were aware of serious issues with suppliers. Contracts for all necessary suppliers
7 had not been finalized;
8 • Suppliers had informed Tesla that the production timelines were
9 impossible;
10 • Production equipment necessary to mass produce Model 3 batteries at the
11 Gigafactory was still in Germany.
12 • The warning that “it is possible that future events could result in the cost of
13 building and operating Gigafactory 1 exceeding our current expectations and Gigafactory 1 taking
14 longer to expand than we currently anticipate” was misleading because this event had already
15 occurred. The building and operating of the automated line at the Gigafactory 1 was already
16 delayed and plagued with serious problems preventing mass production of batteries for the Model
17 3.
18 222. Exhibit 31.1 to the first quarter 2017 10-Q was a Certification, signed by
19 Defendant Musk, which stated, in part:
20 I, Elon Musk, certify that: 1. I have reviewed this Quarterly Report on
21 Form 10-Q of Tesla, Inc.; 2. Based on my knowledge, this report does
22 not contain any untrue statement of material fact or omit to state a
23 material fact necessary to make the statements, in light of the
24 circumstances under which such statements were made, not
25 misleading with respect to the period covered by this report[.]
26 223. Exhibit 31.2 to the first quarter 2017 10-Q was a Certification, signed by
27 Defendant Ahuja, which stated, in part:
28 I, Deepak Ahuja, certify that: 1. I have reviewed this Quarterly Report on
Form 10-Q of Tesla, Inc.; 2. Based on my knowledge, this report does not

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1 contain any untrue statement of material fact or omit to state a material fact

2 necessary to make the statements, in light of the circumstances under which
3 such statements were made, not misleading with respect to the period covered
4 by this report[.]
5 224. The preceding certifications were false and misleading because, as described in
6 detail above, Defendants knew or were reckless in not knowing that their statements in the filing
7 were false because Tesla could not mass produce the Model 3 at any time on or around December
8 31, 2017 because:
9 • During the Class Period there were no fully functioning automated lines to
10 produce the sufficient numbers of Model 3 car bodies in Fremont for mass production, or fully
11 functioning automated lines to produce sufficient batteries for mass production in the Gigafactory;
12 • Preparations at the Fremont and Nevada production facilities were woefully
13 short of being on track to support mass production of the Model 3 in 2017, much less production
14 of 5,000 Model 3s a week at any time in 2017;
15 • The general risk factor regarding delays in mass production of the Model 3
16 in 2017 had specifically materialized, mass production of Model 3s would not happen in 2017,
17 much less production of 5,000 Model 3s a week at any time in 2017. Defendants were duty bound,
18 but failed, to disclose that the hypothetical “risks” warned of had already occurred, rendering the
19 foregoing risk disclosures meaningless.
20 225. On August 2, 2017, after the close of the market, Tesla filed “Tesla Second Quarter
21 2017 Update” as Exhibit 99.1 to an 8-K. The document was signed by Defendants Musk and
22 Ahuja. Directly referencing actual facts on the ground with respect to completion of the automated
23 line meant to produce Model 3, the Company stated, based on current production line
24 advancement, that:
25 Based on our preparedness at this time, we are confident we can produce
26 just over 1,500 vehicles in Q3, and achieve a run rate of 5,000 vehicles per
27 week by the end of 2017.
28

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1 226. The foregoing statement was false and misleading because, as described in detail

2 above, Defendants knew or were reckless in not knowing that Tesla was unable to mass produce
3 the Model 3 either in the third quarter or at any time on or around December 31, 2017 because:
4 • During the Class Period there were no fully functioning automated lines to
5 produce the sufficient numbers of Model 3 car bodies in Fremont for mass production, or fully
6 functioning automated lines to produce sufficient batteries for mass production in the Gigafactory;
7 • The level of “preparedness” at the Fremont and Nevada production facilities
8 was woefully short of being “on track” to support mass production of the Model 3 in 2017, much
9 less production of 5,000 Model 3s a week at any time in 2017;
10 • The Individual Defendants were personally aware from eyewitness
11 observation of both the Fremont and Nevada facilities during the Class Period that there were no
12 fully functioning automated lines to produce the sufficient numbers of Model 3 car bodies in
13 Fremont for mass production, or fully functioning automated lines to produce sufficient batteries
14 for mass production in the Gigafactory, and that “preparations” were not “progressing”;
15 • Tesla did not have a supply chain in place at the start of the Class Period,
16 so Defendants were aware of serious issues with suppliers. Contracts for all necessary suppliers
17 had not been finalized;
18 • Parts necessary for constructing the automated production line in Fremont
19 had not been delivered, and some would not arrive for months;
20 • Suppliers had informed Tesla that the production timelines were
21 impossible;
22 • The automated production line in Fremont was not close to completion, in
23 August 2017;
24 • There was no automated production lines at the Gigafactory;
25 • Production equipment necessary to mass produce Model 3 batteries at the
26 Gigafactory was still in Germany;
27 • Preparations at the Fremont and Nevada production facilities were woefully
28 short of being on track to support mass production of the Model 3 in 2017, much less production
of 5,000 Model 3s a week at any time in 2017.

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1 227. Later that same day, during the August 2, 2017 Conference Call, held after the close

2 of the market, Defendant Musk, in prepared remarks, stated that:
3 And we remain – we believe on track to achieve a 5,000 unit week by the
4 end of this year.
5 So, I would certainly urge people not to get too caught up in what exactly falls
6 within the exact calendar boundaries of a quarter, one quarter over the next,
7 because when you have an exponentially growing production ramp, slight
8 changes of a few weeks here or there can appear to have dramatic changes,
9 but that is simply because of the arbitrary nature of when a quarter ends.
10 ….
11 And then we – with Model 3, even more vertically integrated. I think people
12 should really not have any concerns that we will reach that outcome [10,000
13 cars per week by the end of 2018] from a production rate.
14 228. The foregoing statement was false and misleading because Defendants knew or
15 were reckless in not knowing that Tesla was not “on track” to mass produce the Model 3 at any
16 date on or near December 31, 2017 because:
17 • During the Class Period there were no fully functioning automated lines to
18 produce the sufficient numbers of Model 3 car bodies in Fremont for mass production, or fully
19 functioning automated lines to produce sufficient batteries for mass production in the Gigafactory;
20 • Preparations at the Fremont and Nevada production facilities were woefully
21 short of being “on track” to support mass production of the Model 3 in 2017, much less production
22 of 5,000 Model 3s a week at any time in 2017;
23 • The Individual Defendants were personally aware from eyewitness
24 observation of both the Fremont and Nevada facilities during the Class Period that there were no
25 fully functioning automated lines to produce the sufficient numbers of Model 3 car bodies in
26 Fremont for mass production, or fully functioning automated lines to produce sufficient batteries
27 for mass production in the Gigafactory;
28 • Tesla executives had informed the Company that mass production of the
Model 3 in 2017 was impossible;

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1 • The automated production line in Fremont was not close to completion in

2 August 2017;
3 • There was no automated production line at the Gigafactory;
4 • Production equipment necessary to mass produce Model 3 batteries at the
5 Gigafactory was still in Germany;The Individual Defendants were personally aware from
6 eyewitness observation of both the Fremont and Nevada facilities that the automated lines in
7 Fremont and in Nevada were not completed, or near completion, and that mass production of the
8 Model 3 was not possible in 2017, much less production of 5,000 Model 3s a week at any time in
9 2017.
10 229. During the August 2, 2017 earnings conference call, again in prepared remarks,
11 Defendant Musk stated that “[a]nd then batteries – also making great progress on the battery
12 front.”
13 230. The foregoing statement was false and misleading because, as described in detail
14 above, Defendants knew or were reckless in not knowing that the Gigafactory was unable to mass
15 produce and deliver Model 3 batteries to Fremont on or around December 31, 2017 because:
16 • During the Class Period there were no functioning automated production
17 lines at the Gigafactory, much less production lines sufficient to mass produce batteries, and only
18 a handful of Model 3 batteries were being produced each week;
19 • Defendants were personally aware from eyewitness observation of the
20 Gigafactory facility during the Class Period that there were no fully functioning automated lines
21 to produce sufficient batteries for mass production in the Gigafactory;
22 • Tesla executives had informed the Company that mass production of the
23 Model 3 in 2017 was not feasible;
24 • There was no automated production line at the Gigafactory;
25 • Production equipment necessary to mass produce Model 3 batteries at the
26 Gigafactory was still in Germany.
27 231. During the August 2, 2017 Conference Call, analyst David Tamberrino of Goldman
28 Sachs & Co. LLC asked:
Okay. Then I guess my follow-up question will just be on your 3Q gross

2 how dependent upon production and hitting an S-curve or ramping up do you
3 think that below 20% is? Could it be a couple hundred basis points below
4 20%, or is it just think you’re going to be around that area based on what the
5 curve that you’ve laid out so far is going to look like?
6 Defendant Musk responded with the following claim about current production on the
7 automated line, stating:
8 Yes. This is just because of Model 3 is fundamentally negative gross margin
9 in the very beginning. Because you got a gigantic machine producing – that’s
10 meant for 5,000 vehicles a week and it’s producing a few hundred vehicles
11 a week.
12 232. Defendant Musk’s preceding statements were materially false and misleading
13 because, as described in detail above, Defendants knew or were reckless in not knowing that Tesla
14 could not mass produce the Model 3 at any time on or around December 31, 2017 because:
15 • No automated line, or “gigantic machine,” was “producing a few hundred
16 vehicles a week in the Fremont facility. The automated production line for the Model 3 in Fremont
17 was not yet functioning. The Company only produced 260 Model 3s during the entire third quarter
18 of 2017, an average of fewer than 3 Model 3s per day;
19 • As of August 2, 2017, Model 3s were still being produced by hand in the
20 pilot shop in Fremont;
21 • Defendants were personally aware from eyewitness observation of the
22 Fremont facility during the Class Period that there were no fully functioning automated lines to
23 produce hundreds of Model 3s per week, and that such production was not occurring.
24 233. On August 4, 2017, after the market closed, Tesla filed with the SEC a 10-Q for the
25 quarter ended June 30, 2017. The 10-Q was signed by Defendant Ahuja. The filing included the
26 following risk factor:
27 We may experience delays in realizing our projected
28 timelines and cost and volume targets for the production, launch and

2 financial condition and operating results.
3 Our future business depends in large part on our ability to execute on our
4 plans to manufacture, market and sell the Model 3 vehicle, which we intend
5 to offer at a lower price point and to produce at significantly higher volumes
6 than our present production capabilities for the Model S or Model X vehicles.
7 We commenced production and initial customer deliveries of Model 3 in July
8 2017 and have announced our goal to increase Model 3 vehicle production to
9 5,000 vehicles per week by the end of 2017 and 10,000 vehicles per week at
10 some point in 2018.
11 (emphasis in original).
12 234. The preceding risk disclosure was false and misleading because, as described in
13 detail above, Defendants knew or recklessly disregarded that:
14 • The adverse event warned of hypothetically in this general risk factor had
15 already occurred, and mass production of Model 3s would not happen in 2017, much less
16 production of 5,000 Model 3s a week at any time in 2017. Defendants were duty bound, but failed,
17 to disclose the true state of affairs, rendering the foregoing risk disclosure meaningless.
18 • Preparedness for mass production at both the Fremont and Nevada facilities
19 was non-existent. Fully functioning automated lines were not completed, or close to being
20 completed, and would not support mass production of Model 3s in 2017, much less production of
21 5,000 Model 3s a week at any time in 2017. All Model 3 were being constructed by hand in the
22 Fremont pilot shop;
23 • The Individual Defendants were personally aware from eyewitness
24 observation of both the Fremont and Nevada facilities during the Class Period that there were no
25 fully functioning automated lines to produce the sufficient numbers of Model 3 car bodies in
26 Fremont for mass production, or fully functioning automated lines to produce sufficient batteries
27 for mass production in the Gigafactory, and that preparations were not progressing;
28

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1 • Tesla did not have a supply chain in place at the start of the Class Period,

2 so Defendants were aware of serious issues with suppliers. Contracts for all necessary suppliers
3 had not been finalized;
4 • Parts necessary for constructing the automated production line in Fremont
5 had not been delivered, and some would not arrive for months;
6 • Suppliers had informed Tesla that the production timelines were
7 impossible;
8 • Production equipment necessary to mass produce Model 3 batteries at the
9 Gigafactory was still in Germany;
10 • Preparations at the Fremont and Nevada production facilities were woefully
11 short of being on track to support mass production of the Model 3 in 2017, much less production
12 of 5,000 Model 3s a week at any time in 2017.
13 235. In the same August 4, 2017, second quarter 2017 10-Q, with respect to current
14 progress at the Gigafactory in Nevada, the Company stated that:
15 While we currently believe that our progress at Gigafactory 1 will allow us
16 to reach our production targets, our ultimate ability to do so will require us
17 to resolve the types of challenges that are typical of a production ramp, such
18 as those that we have experienced to date, including at Gigafactory 1.
19 236. The preceding statement was false and misleading because, as described in detail
20 above, Defendants knew or were reckless in not knowing that they would fail to reach their
21 production target of mass production of the Model 3 on or around December 31, 2017 because:
22 • During the Class Period there were no automated lines producing sufficient
23 numbers of Model 3 batteries for mass production in the Gigafactory;
24 • “Progress” at the Nevada production facility was virtually nonexistent, and
25 only a handful of Model 3 batteries were being produced each week. Preparations were woefully
26 short of being “on track” to support mass production of the Model 3 in 2017, much less production
27 of 5,000 Model 3s a week at any time in 2017;
28

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1 • Defendants were personally aware from eyewitness observation of the

2 Gigafactory facility during the Class Period that there were no fully functioning automated lines
3 to produce hundreds of Model 3 batteries per week, and that such production was not occurring;
4 • Only a handful of Model 3 batteries were being produced each week;
5 • Defendants were personally aware from eyewitness observation of the
6 Gigafactory facility during the Class Period that there were no fully functioning automated lines
7 to produce sufficient batteries for mass production in the Gigafactory;
8 • Tesla executives had informed the Company that mass production of the
9 Model 3 in 2017 was not feasible;
10 • Production equipment necessary to mass produce Model 3 batteries at the
11 Gigafactory was still in Germany.
12 237. The second quarter 2017 10-Q contained the following “risk factor” with respect to
13 battery production at the Gigafactory:
14 To lower the cost of cell production and produce cells in high volume, we are
15 integrating the production of lithium-ion cells and finished battery packs for
16 the Model 3 and energy storage products at Gigafactory 1. While Gigafactory
17 1 began producing lithium-ion cells for energy storage products in January
18 2017 and has since begun producing lithium-ion cells for Model 3, we have
19 no other direct experience in the production of lithium-ion cells. Given the
20 size and complexity of this undertaking, it is possible that future events could
21 result in the cost of expanding and operating Gigafactory 1 exceeding our
22 current expectations and Gigafactory 1 taking longer to ramp production and
23 expand than we currently anticipate. In order to reach our planned volume
24 and gross margin for Model 3, we must have significant cell production from
25 Gigafactory 1, which, among other things, requires Panasonic to successfully
26 ramp its all-new cell production lines to significant volumes over a short
27 period of time. Although Panasonic has a long track record of producing high-
28 quality cells at significant volume at its factories in Japan, it has never before
started and ramped cell production at a factory in the U.S. like at Gigafactory

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1 1. We are now in the early stages of production and have experienced the

2 types of challenges that typically come with a production ramp. We expect
3 that we will continue to experience challenges as we move through the ramp,
4 and we will continue to fine-tune our manufacturing lines to address
5 them. While we currently believe that we will reach our production targets,
6 if we are unable to resolve ramping challenges and expand Gigafactory
7 1 production in a timely manner and at reasonable prices, and if
8 we or Panasonic are unable to attract, hire and retain a substantial number of
9 highly skilled personnel, our ability to supply battery packs to our vehicles,
10 especially Model 3, and other products could be negatively impacted. Any
11 such problems or delays with Gigafactory 1 could negatively affect our brand
12 and harm our business, prospects, financial condition and operating results.
13 238. The preceding risk disclosure was false and misleading because, as described in
14 detail above, Defendants knew or were reckless in not knowing that they would fail to reach their
15 production target of mass production of the Model 3 on or around December 31, 2017 because:
16 • The adverse event warned of hypothetically in this general risk factor had
17 already occurred, and mass production of the Model 3 would not happen in 2017, much less reach
18 the production target of 5,000 Model 3s a week in 2017. As Defendants were eyewitnesses to the
19 failure of mass production at the Gigafactory, Defendants were duty bound, but failed, to disclose
20 the specific risk to the Company, rendering the foregoing risk disclosure meaningless;
21 • Preparedness for mass production at both the Fremont and Nevada facilities
22 was non-existent. Fully functioning automated lines were not completed, or close to being
23 completed, and would not support mass production of Model 3s in 2017, much less production of
24 5,000 Model 3s a week at any time in 2017. All Model 3 were being constructed by hand in the
25 Fremont pilot shop;
26 • The Individual Defendants were personally aware from eyewitness
27 observation of both the Fremont and Nevada facilities during the Class Period that there were no
28 fully functioning automated lines to produce sufficient numbers of Model 3 car bodies in Fremont

2 production in the Gigafactory, and that “preparations” were not “progressing”;
3 • Tesla did not have a supply chain in place at the start of the Class Period,
4 so Defendants were aware of serious issues with suppliers. Contracts for all necessary suppliers
5 had not been finalized;
6 • Parts necessary for constructing the automated production line in Fremont
7 had not been delivered, and some would not arrive for months;
8 • Suppliers had informed Tesla that the production timelines were
9 impossible;
10 • Production equipment necessary to mass produce Model 3 batteries at the
11 Gigafactory was still in Germany;
12 • Preparations at the Fremont and Nevada production facilities were woefully
13 short of being on track to support mass production of the Model 3 in 2017, much less production
14 of 5,000 Model 3s a week at any time in 2017.
15 239. Exhibit 31.1 to the second quarter 2017 10-Q was a Certification, signed by
16 Defendant Musk, which stated, in part:
17 I, Elon Musk, certify that: 1. I have reviewed this Quarterly Report on Form
18 10-Q of Tesla, Inc.; 2. Based on my knowledge, this report does not contain
19 any untrue statement of material fact or omit to state a material fact necessary
20 to make the statements, in light of the circumstances under which such
21 statements were made, not misleading with respect to the period covered by
22 this report[.]
23 240. Exhibit 31.2 to the second quarter 2017 10-Q was a Certification, signed by
24 Defendant Ahuja, which stated, in part:
25 I, Deepak Ahuja, certify that: 1. I have reviewed this Quarterly Report on
26 Form 10-Q of Tesla, Inc.; 2. Based on my knowledge, this report does not
27 contain any untrue statement of material fact or omit to state a material fact
28 necessary to make the statements, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered

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1 by this report[.]

2 241. The preceding certifications were false and misleading because, as described in
3 detail above, Defendants knew or were reckless in not knowing that their statements in the filing
4 were false because Tesla could not mass produce the Model 3 at any time on or around December
5 31, 2017 because:
6 • During the Class Period there were no fully functioning automated lines to
7 produce the sufficient numbers of Model 3 car bodies in Fremont for mass production, or fully
8 functioning automated lines to produce sufficient batteries for mass production in the Gigafactory;
9 • Preparations at the Fremont and Nevada production facilities were woefully
10 short of being on track to support mass production of the Model 3 in 2017, much less production
11 of 5,000 Model 3s a week at any time in 2017;
12 • The general risk factor warned of hypothetically regarding delays in mass
13 production of the Model 3 in 2017 had already occurred, mass production of Model 3s and Model
14 3 batteries would not happen in 2017, much less production of 5,000 Model 3s per week at any
15 time in 2017. Defendants were duty bound, but failed, to disclose the true state of affairs of the
16 Company, rendering the foregoing risk disclosures meaningless;
17 • Tesla did not have a supply chain in place at the start of the Class Period,
18 so Defendants were aware of serious issues with suppliers. Contracts for all necessary suppliers
19 had not been finalized;
20 • Parts necessary for constructing the automated production line in Fremont
21 had not been delivered, and some would not arrive for months;
22 • Suppliers had informed Tesla that the production timelines were
23 impossible;
24 • Production equipment necessary to mass produce Model 3 batteries at the
25 Gigafactory was still in Germany.
26 The Truth Begins to Emerge
27 242. On October 2, 2017, in a press release detailing the Company’s vehicle production
28 and deliveries for the third quarter of 2017, Tesla cited “production bottlenecks” as the reason for
its failure to meet its production goals for its Model 3 sedan.

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1 243. On October 6, 2017, post-market, the Wall Street Journal published an article

2 entitled “Behind Tesla’s Production Delays: Parts of Model 3 Were Being Made by Hand,”
3 reporting in part, that:
4 Unknown to analysts, investors and the hundreds of thousands of customers
5 who signed up to buy it, as recently as early September major portions of the
6 Model 3 were still being banged out by hand, away from the automated
7 production line, according to people familiar with the matter.
8
9 While the car’s production began in early July, the advanced assembly line
10 Tesla has boasted of building still wasn’t fully ready as of a few weeks ago,
11 the people said. Tesla’s factory workers had been piecing together parts of
12 the cars in a special area while the company feverishly worked to finish the
13 machinery designed to produce Model 3’s at a rate of thousands a week, the
14 people said.
15 Automotive experts say it is unusual to be building large parts of a car by
16 hand during production. “That’s not how mass production vehicles are
17 made,” said Dennis Virag, a manufacturing consultant who has worked in the
18 automotive industry for 40 years. “That’s horse-and-carriage type
19 manufacturing. That’s not today’s automotive world.”
20 ***
21 Behind the scenes, Tesla had fallen weeks behind in finishing the
22 manufacturing systems to build the vehicle, the people said.
23
24 The extent of the problem came to light on Monday when Tesla said it made
25 only 260 Model 3s during the third quarter—averaging three cars a day. The
26 company cited production bottlenecks but didn’t explain much further.
27 ***
28 It isn’t uncommon for much larger auto makers to hand build pre-production
versions of a car prior to the sales launch, but those are typically reserved for

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1 employees and others willing to test the cars and return them to the company.

2 By the time a car goes on sale, the body shop is typically fully automated.
3
4 Inside the Fremont factory, workers said equipment for the so-called body-
5 in-white line for the Model 3, where the car body’s sheet metal is welded
6 together, wasn’t installed until by around September. They guessed at least
7 another month of work remained to calibrate the tools.
8 One worker who spent time in the Model 3 shop—dubbed by some as Area
9 51 because of the limited access and secretive nature—described watching
10 young workers in September struggling to move large pieces of steel to weld
11 together instead of using robots as is traditionally the case.
12 “In place of the robots…you’ve got two associates lining up with a big, old
13 spot welder hanging from the ceiling by a chain, and you’ve got one associate
14 kind of like balancing it and trying to get the welder in position, and you’ve
15 got another welder with his arm guiding it,” this worker recalled seeing.
16 “Sparks go flying.”
17 244. As a result of this news, Tesla’s share price fell $13.94, or 3.91%, to close at
18 $342.94 on October 9, 2017, damaging investors.
19 245. On November 1, 2017, after market close, Tesla filed with the SEC an 8-K reporting
20 the results of operations of the Third Quarter of 2017. Attached as Exhibit 99-1 to the 8-K was
21 “Tesla Third Quarter 2017 Update.” Tesla revealed in Exhibit 99-1 that production bottlenecks at
22 its Gigafactory facility in Nevada caused by the complexity of “the battery module assembly line
23 at Gigafactory 1, where cells are packaged into modules…., ” had prevented Tesla from reaching
24 its mass production goals for the Model 3. Tesla further stated that it was redirecting its “best
25 engineering talent” to the Gigafactory to attempt to remove the production bottlenecks. Tesla
26 further moved out its production of 5,000 Model 3s per week to the end of the first quarter of 2018.
27
28

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1 246. On November 2, 2017, at approximately 12 p.m. EST, the car blog Jalopnik

2 published an article entitled “Tesla’s ‘Hell’ Threatens its Future.” 47 The article confirmed many
3 of the statements of the former employees cited herein, including that: (a) as of mid-October, some
4 suppliers had not yet received production approval for their tooling, (b) the Model 3 assembly line
5 was not in operation as of October 2017, causing the Company to dial back Model 3 parts orders
6 by 40%, (c) witnesses confirmed that the Model 3 was being built by hand as of October 2017, (d)
7 witnesses further confirmed that Model 3s were being built in an area separate from the area
8 containing the automated production line, (e) witnesses who walked through the Fremont facility
9 stated that the fact that the automated production line is not functioning as planned is “plainly
10 obvious if you see the Model 3 area of the Fremont plant,” and (f) an ex-employee who had
11 recently left Tesla stated with respect to the Model 3 production line in Fremont “as far as being
12 able to push a car through there, automated, hell no.”
13 247. As a result of Tesla’s November 1, 2017 8-K and the Jalopnik article entitled
14 “Tesla’s ‘Hell’ Threatens its Future,” Tesla’s share price fell $21.82, or 6.8%, to close at $299.26
15 on November 2, 2017, damaging investors.
16 248. As a result of Defendants’ wrongful acts and omissions, and the precipitous decline
17 in the market value of the Company’s common shares, Plaintiffs and other Class members have
18 suffered significant losses and damages.
19 Further Post-Class Period Events
20 249. In an 8-K Defendants filed with the SEC on February 9, 2018, Tesla “clarif[ied]”
21 Defendant Musk’s statement made during an earnings conference call two days earlier, on
22 February 7, 2018, concerning battery production capacity at the Gigafactory in February 2018:
23 Tesla, Inc. is clarifying the following statement made by Elon Musk, Tesla’s Chief
24 Executive Officer, during Tesla’s fourth quarter and full year 2017 financial results
25 conference call held on February 7, 2018:
26 “[We] expect the new automated lines to arrive next month in March. And then it's
27 already working in Germany so that’s going to be disassembled, brought out to the
28
47
https://jalopnik.com/teslas-hell-threatens-its-future-1819917980.

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1 Gigafactory and reassembled and then go into operation at the Gigafactory. It's

2 not a question whether it works or not. It's just a question of disassembly, transport
3 and reassembly. So we expect to alleviate that constraint. With alleviating that
4 constraint, that's what gets us to the roughly 2,000 to 2,500 unit per week
5 production rate.”
6
7 The “2,000 to 2,500” units per week cited in this comment refers solely to the
8 capacity of the additional automated battery module manufacturing equipment that
9 is currently located in Germany, and not to Tesla’s total Model 3 production run
10 rate or to the capacity of the automated battery module equipment that is already
11 present at Gigafactory 1. Tesla’s ability to meet its target of 2,500 per week by end
12 of Q1 2018 is not dependent on the additional equipment that is currently located
13 in Germany, as that equipment is expected to start ramping production during Q2
14 2018. With respect to battery module production, Tesla’s ability to meet its target
15 of 2,500 per week by end of Q1 2018 is dependent only on the equipment that is
16 already present at Gigafactory 1, as well as the incremental capacity that is currently
17 being added through the semi-automated lines that were also discussed during the
18 conference call.
19 250. With this filing Tesla admitted that mass production of Model 3 batteries in the
20 Gigafactory had never been a possibility in 2017.
21 251. Subsequent to the Class Period, Tesla again moved back its production deadline of
22 5,000 Model 3s per week to the end of the second quarter of 2018. Tesla stated that it would
23 produce 2,500 Model 3’s per week by the end of the first quarter of 2018.
24 252. Bloomberg calculates how many Model 3s are produced per week, as Tesla, unlike
25 almost every author carmaker, releases such figures after every financial quarter, rather than each
26 month. As of March 21, 2018, 10 days before the deadline by which Tesla still claims it will
27 produce 2,500 Model 3s per week, Tesla is producing 817 Model 3s per week. 48
28
48
See https://www.bloomberg.com/graphics/2018-tesla-tracker/.

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1 253. Jalopnik published an article on January 25, 2018, entitled “Tesla’s Making Model

2 3 Batteries by Hand Amid More Gigafactory Problems: Report.” 49 The article confirmed
3 statements from Former Employees cited herein, including that (a) Tesla was making batteries by
4 hand as late as December 2017, and (b) Tesla is “not close to mass-producing batteries for the
5 basic $35,000 model of this electric sedan.”
6 254. On March 14, 2018, CNBC reported that Tesla’s own employees were reporting
7 that the Company is manufacturing a high ratio of flawed parts and Model 3 vehicles requiring
8 rework and repair. 50 According to a Tesla engineer, approximately 40% of parts made or received
9 in Fremont require rework, contributing to delays.
10 PLAINTIFFS’ CLASS ACTION ALLEGATIONS
11 255. Plaintiffs bring this action as a class action pursuant to Federal Rule of Civil
12 Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased or otherwise
13 acquired Tesla common shares traded on the NASDAQ during the Class Period (the “Class”); and
14 were damaged upon the revelation of the alleged corrective disclosures. Excluded from the Class
15 are Defendants herein, the officers and directors of the Company, at all relevant times, members
16 of their immediate families and their legal representatives, heirs, successors or assigns and any
17 entity in which Defendants have or had a controlling interest.
18 256. The members of the Class are so numerous that joinder of all members is
19 impracticable. Throughout the Class Period, Tesla common shares were actively traded on the
20 NASDAQ. While the exact number of Class members is unknown to Plaintiffs at this time and can
21 be ascertained only through appropriate discovery, Plaintiffs believes that there are hundreds or
22 thousands of members in the proposed Class. Record owners and other members of the Class may
23 be identified from records maintained by Tesla or its transfer agent and may be notified of the
24 pendency of this action by mail, using the form of notice similar to that customarily used in
25 securities class actions.
26
27 49
See https://jalopnik.com/teslas-making-model-3-batteries-by-hand-amid-more-gigaf-
28 1822426440.
50
See https://www.cnbc.com/2018/03/14/tesla-manufacturing-high-volume-of-flawed-parts-
employees.html.

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1 257. Plaintiffs’ claims are typical of the claims of the members of the Class as all

2 members of the Class are similarly affected by Defendants’ wrongful conduct in violation of
3 federal law that is complained of herein.
4 258. Plaintiffs will fairly and adequately protect the interests of the members of the Class
5 and has retained counsel competent and experienced in class and securities litigation. Plaintiffs
6 have no interests antagonistic to or in conflict with those of the Class.
7 259. Common questions of law and fact exist as to all members of the Class and
8 predominate over any questions solely affecting individual members of the Class. Among the
9 questions of law and fact common to the Class are:
10 • whether the federal securities laws were violated by Defendants’ acts as
11 alleged herein;
12 • whether statements made by Defendants to the investing public during the
13 Class Period misrepresented material facts about the financial condition,
14 business, operations, and management of Tesla;
15 • whether Defendants caused Tesla to issue false and misleading financial
16 statements during the Class Period;
17 • whether Defendants acted knowingly or recklessly in issuing false and
18 misleading financial statements;
19 • whether the prices of Tesla securities during the Class Period were
20 artificially inflated because of Defendants’ conduct complained of herein;
21 and
22 • whether the members of the Class have sustained damages and, if so, what
23 is the proper measure of damages.
24 260. A class action is superior to all other available methods for the fair and efficient
25 adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the
26 damages suffered by individual Class members may be relatively small, the expense and burden
27 of individual litigation make it impossible for members of the Class to individually redress the
28 wrongs done to them. There will be no difficulty in the management of this action as a class action.

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1 261. Plaintiffs will rely, in part, upon the presumption of reliance established by the

2 fraud-on-the-market doctrine in that:
3 • Defendants made public misrepresentations or failed to disclose material
4 facts during the Class Period;
5 • the omissions and misrepresentations were material;
6 • Tesla common shares are traded in efficient markets;
7 • the Company’s shares were liquid and traded with moderate to heavy
8 volume during the Class Period;
9 • the Company traded on the NASDAQ, and was covered by multiple
10 analysts;
11 • the misrepresentations and omissions alleged would tend to induce a
12 reasonable investor to misjudge the value of the Company’s common
13 shares; and
14 • Plaintiffs and members of the Class purchased and/or sold Tesla common
15 shares between the time the Defendants failed to disclose or misrepresented
16 material facts and the time the true facts were disclosed, without knowledge
17 of the omitted or misrepresented facts.
18 262. At all relevant times, the market for Tesla’s securities was an efficient market for
19 the following reasons, among others:
20 • Tesla’s stock met the requirements for listing, and was listed and actively
21 traded on the NASDAQ, a highly efficient and automated market;
22 • As a regulated issuer in U.S., Tesla filed periodic public reports with the
23 SEC;
24 • Tesla regularly communicated with public investors via established market
25 communication mechanisms, including through regular dissemination of
26 press releases on the national circuits of major newswire services and
27 through other wide-ranging public disclosures, such as communications
28 with the financial press and other similar reporting services;

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1 • Tesla was followed by securities analysts employed by brokerage firms who

2 wrote reports about the Company, and these reports were distributed to the
3 sales force and certain customers of their respective brokerage firms. Each
4 of these reports was publicly available and entered the public marketplace.
5 Analysts covering Tesla included, without limitation, Jefferies, Barclays,
6 Morgan Stanley, Morningstar, Inc., Guggeheim Securities, Goldman Sachs,
7 J.P. Morgan, Oppenheimer & Co., and UBS;
8 • The price of Tesla’s stock reacted to the release of new, material, company-
9 specific information;
10 • At the beginning of the Class Period, Tesla’s market capitalization or the
11 total value of all outstanding shares was approximately $51.07 billion;
12 • As of May 2, 2017, just before the Class Period, Tesla reported shares
13 outstanding of approximately 164 million shares. As of May 3, 2017, the
14 beginning of the Class Period, Tesla’s equity float, or the number of shares
15 outstanding less shares held by insiders and affiliated corporate entities, was
16 approximately 111 million shares;
17 • Tesla had 44 market makers during the Class Period;
18 • During the Class Period, Tesla was entitled to file S-3 Registration
19 Statements in connection with public offerings, and did in fact file an S-3
20 Registration Statement on November 7, 2017.
21 263. Based upon the foregoing, the market for Tesla’s securities promptly digested
22 current information regarding Tesla from all publicly available sources and reflected such
23 information in Tesla’s stock price. Under these circumstances, all purchasers of Tesla’s securities
24 during the Class Period suffered similar injury through their purchase of Tesla’s securities at
25 artificially inflated prices and Plaintiffs and the members of the Class are entitled to a presumption
26 of reliance upon the integrity of the market.
27 264. Alternatively, Plaintiffs and the members of the Class are entitled to the
28 presumption of reliance established by the Supreme Court in Affiliated Ute Citizens of the State of
Utah v. United States, 406 U.S. 128, 92 S. Ct. 2430 (1972), as Defendants omitted material

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1 information in their Class Period statements in violation of a duty to disclose such information, as

2 detailed above.
3 COUNT I
4 Violation of Section 10(b) of The Exchange Act and Rule 10b-5 Against All Defendants
5 265. Plaintiffs repeat and reallege each and every allegation contained above as if fully
6 set forth herein.
7 266. This Count is asserted against Tesla and the Individual Defendants and is based
8 upon Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated
9 thereunder by the SEC.
10 267. During the Class Period, Tesla and the Individual Defendants, individually and in
11 concert, directly or indirectly, disseminated or approved the false statements specified above,
12 which they knew or deliberately disregarded were misleading in that they contained
13 misrepresentations and failed to disclose material facts necessary in order to make the statements
14 made, in light of the circumstances under which they were made, not misleading.
15 268. Tesla and the Individual Defendants violated §10(b) of the 1934 Act and Rule 10b-
16 5 in that they:
17 • employed devices, schemes and artifices to defraud;
18 • made untrue statements of material facts or omitted to state material facts
19 necessary in order to make the statements made, in light of the
20 circumstances under which they were made, not misleading; or
21 • engaged in acts, practices and a course of business that operated as a fraud
22 or deceit upon plaintiffs and others similarly situated in connection with
23 their purchases of Tesla common shares during the Class Period.
24 269. Tesla and the Individual Defendants acted with scienter in that they knew that the
25 public documents and statements issued or disseminated in the name of Tesla were materially false
26 and misleading; knew that such statements or documents would be issued or disseminated to the
27 investing public; and knowingly and substantially participated, or acquiesced in the issuance or
28 dissemination of such statements or documents as primary violations of the securities laws. These
Defendants by virtue of their receipt of information reflecting the true facts of Tesla, their control

2 and/or their associations with the Company which made them privy to confidential proprietary
3 information concerning Tesla, participated in the fraudulent scheme alleged herein.
4 270. Individual Defendants, who are the senior officers and/or directors of the Company,
5 had actual knowledge of the material omissions and/or the falsity of the material statements set
6 forth above, and intended to deceive Plaintiffs and the other members of the Class, or, in the
7 alternative, acted with reckless disregard for the truth when they failed to ascertain and disclose
8 the true facts in the statements made by them or other Tesla personnel to members of the investing
9 public, including Plaintiffs and the Class.
10 271. As a result of the foregoing, the market price of Tesla common shares was
11 artificially inflated during the Class Period. In ignorance of the falsity of Tesla’s and the Individual
12 Defendants’ statements, Plaintiffs and the other members of the Class relied on the statements
13 described above and/or the integrity of the market price of Tesla common shares during the Class
14 Period in purchasing Tesla common shares at prices that were artificially inflated as a result of
15 Tesla’s and the Individual Defendants’ false and misleading statements.
16 272. Had Plaintiffs and the other members of the Class been aware that the market price
17 of Tesla common shares had been artificially and falsely inflated by Tesla’s and the Individual
18 Defendants’ misleading statements and by the material adverse information which Tesla’s and the
19 Individual Defendants did not disclose, they would not have purchased Tesla’s common shares at
20 the artificially inflated prices that they did, or at all.
21 273. As a result of the wrongful conduct alleged herein, Plaintiffs and other members of
22 the Class have suffered damages in an amount to be established at trial.
23 274. By reason of the foregoing, Tesla and the Individual Defendants have violated
24 Section 10(b) of the 1934 Act and Rule 10b-5 promulgated thereunder and are liable to the
25 plaintiffs and the other members of the Class for substantial damages which they suffered in
26 connection with their purchase of Tesla common shares during the Class Period.
27
28

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COUNT II
1
Violation of Section 20(a) of The Exchange Act Against The Individual Defendants
2
275. Plaintiffs repeat and reallege each and every allegation contained in the foregoing
3
paragraphs as if fully set forth herein.
4
276. During the Class Period, the Individual Defendants participated in the operation
5
and management of Tesla, and conducted and participated, directly and indirectly, in the conduct
6
of Tesla’s business affairs. Because of their senior positions, they knew the adverse non-public
7
information regarding the Company’s inadequate internal safeguards in data security protocols.
8
277. As officers and/or directors of a publicly owned company, the Individual
9
Defendants had a duty to disseminate accurate and truthful information with respect to Tesla’s
10
financial condition and results of operations, and to correct promptly any public statements issued
11
by Tesla which had become materially false or misleading.
12
278. Because of their positions of control and authority as senior officers, the Individual
13
Defendants were able to, and did, control the contents of the various reports, press releases and
14
public filings which Tesla disseminated in the marketplace during the Class Period. Throughout
15
the Class Period, the Individual Defendants exercised their power and authority to cause Tesla to
16
engage in the wrongful acts complained of herein. The Individual Defendants therefore, were
17
“controlling persons” of Tesla within the meaning of Section 20(a) of the Exchange Act. In this
18
capacity, they participated in the unlawful conduct alleged which artificially inflated the market
19
price of Tesla common shares.
20
279. By reason of the above conduct, the Individual Defendants are liable pursuant to
21
Section 20(a) of the Exchange Act for the violations committed by Tesla.
22
23
24
25
26
27
28